Is Vivakor (NASDAQ:VIVK) Using Debt Sensibly?

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.' 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 Vivakor, Inc. (NASDAQ:VIVK) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

View our latest analysis for Vivakor

What Is Vivakor's Debt?

The image below, which you can click on for greater detail, shows that Vivakor had debt of US$10.1m at the end of March 2022, a reduction from US$11.5m over a year. However, it does have US$10.3m in cash offsetting this, leading to net cash of US$199.9k.

A Look At Vivakor's Liabilities

The latest balance sheet data shows that Vivakor had liabilities of US$5.09m due within a year, and liabilities of US$13.2m falling due after that. On the other hand, it had cash of US$10.3m and US$845 worth of receivables due within a year. So it has liabilities totalling US$7.96m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Vivakor is worth US$29.8m, 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. While it does have liabilities worth noting, Vivakor also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Vivakor 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.

Over 12 months, Vivakor reported revenue of US$993k, which is a gain of 75%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Vivakor?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Vivakor had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$6.7m and booked a US$16m accounting loss. Given it only has net cash of US$199.9k, the company may need to raise more capital if it doesn't reach break-even soon. Vivakor's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Vivakor has 5 warning signs (and 2 which shouldn't be ignored) we think you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.