Does Vee (WSE:VEE) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Vee S.A. (WSE:VEE) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Vee

How Much Debt Does Vee Carry?

The image below, which you can click on for greater detail, shows that at September 2022 Vee had debt of zł7.18m, up from zł3.24m in one year. However, it also had zł265.3k in cash, and so its net debt is zł6.91m.

How Healthy Is Vee's Balance Sheet?

We can see from the most recent balance sheet that Vee had liabilities of zł8.29m falling due within a year, and liabilities of zł3.43m due beyond that. Offsetting these obligations, it had cash of zł265.3k as well as receivables valued at zł3.77m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by zł7.69m.

Vee has a market capitalization of zł27.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Vee's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Vee wasn't profitable at an EBIT level, but managed to grow its revenue by 35%, to zł2.4m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Vee still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping zł5.7m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through zł5.8m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with Vee .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.