Would Vee (WSE:VEE) Be Better Off With Less Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Vee S.A. (WSE:VEE) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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 examine debt levels, we first consider both cash and debt levels, 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 March 2022 Vee had debt of zł8.10m, up from zł2.19m in one year. However, because it has a cash reserve of zł208.7k, its net debt is less, at about zł7.89m.

How Strong Is Vee's Balance Sheet?

We can see from the most recent balance sheet that Vee had liabilities of zł9.15m falling due within a year, and liabilities of zł3.53m due beyond that. On the other hand, it had cash of zł208.7k and zł6.96m worth of receivables due within a year. So it has liabilities totalling zł5.51m more than its cash and near-term receivables, combined.

Since publicly traded Vee shares are worth a total of zł49.7m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Vee wasn't profitable at an EBIT level, but managed to grow its revenue by 26%, to zł2.1m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Over the last twelve months Vee produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at zł4.6m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled zł1.5m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for Vee you should be aware of, and 2 of them are a bit concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.