Here's Why voxeljet (NASDAQ:VJET) Can Afford Some Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. We note that voxeljet AG (NASDAQ:VJET) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for voxeljet

What Is voxeljet's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 voxeljet had €22.9m of debt, an increase on €17.5m, over one year. However, because it has a cash reserve of €6.90m, its net debt is less, at about €16.0m.

How Strong Is voxeljet's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that voxeljet had liabilities of €9.09m due within 12 months and liabilities of €25.9m due beyond that. On the other hand, it had cash of €6.90m and €4.66m worth of receivables due within a year. So its liabilities total €23.4m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because voxeljet is worth €53.1m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since voxeljet will need earnings to service that debt. 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 voxeljet had a loss before interest and tax, and actually shrunk its revenue by 5.8%, to €22m. We would much prefer see growth.

Caveat Emptor

Over the last twelve months voxeljet produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping €12m. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €7.2m of cash over the last year. So in short it's a really risky stock. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for voxeljet (of which 2 can't be ignored!) you should know about.

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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