Health Check: How Prudently Does Comvita (NZSE:CVT) Use Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Comvita Limited (NZSE:CVT) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Comvita Carry?

The image below, which you can click on for greater detail, shows that Comvita had debt of NZ$71.4m at the end of June 2025, a reduction from NZ$87.9m over a year. However, because it has a cash reserve of NZ$9.00m, its net debt is less, at about NZ$62.4m.

How Strong Is Comvita's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Comvita had liabilities of NZ$79.4m due within 12 months and liabilities of NZ$39.0m due beyond that. On the other hand, it had cash of NZ$9.00m and NZ$25.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by NZ$83.6m.

This deficit casts a shadow over the NZ$52.9m company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Comvita would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Comvita's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

See our latest analysis for Comvita

Over 12 months, Comvita made a loss at the EBIT level, and saw its revenue drop to NZ$192m, which is a fall of 4.1%. We would much prefer see growth.

Caveat Emptor

Importantly, Comvita had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping NZ$27m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. It's fair to say the loss of NZ$105m didn't encourage us either; we'd like to see a profit. And until that time we think this is a risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with Comvita (including 1 which is significant) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.