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Warren Buffett said: “Volatility is far from synonymous with risk”. It’s only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We can see that Vibe Growth Company (CSE: VIBE) uses debt in its business. But should shareholders be concerned about its use of debt?
When Is Debt a Problem?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first step in examining a company’s debt levels is to consider its cash flow and debt together.
See our latest review for Vibe Growth
What is Vibe Growth’s debt?
The image below, which you can click for more details, shows that Vibe Growth was in debt of $ 1.55 million at the end of June 2021, a reduction from $ 1.64 million. over a year. However, his balance sheet shows that he holds $ 13.0 million in cash, so he actually has $ 11.4 million in net cash.
A look at the liabilities of Vibe Growth
We can see from the most recent balance sheet that Vibe Growth had liabilities of US $ 7.70 million due within one year and liabilities of US $ 3.37 million due beyond. In return, he had $ 13.0 million in cash and $ 222.2 thousand in receivables due within 12 months. So he actually has US $ 2.15 million Following liquid assets as total liabilities.
This short-term liquidity is a sign that Vibe Growth could probably repay its debt easily, as its balance sheet is far from tight. In short, Vibe Growth has net cash, so it’s fair to say that it doesn’t have a lot of debt!
Even more impressive, Vibe Growth increased its EBIT by 752% year over year. If sustained, this growth will make debt even more manageable in the years to come. There is no doubt that we learn the most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Vibe Growth’s ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts‘ earnings forecasts.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. While Vibe Growth has net cash on its balance sheet, it’s still worth looking at its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it’s building ( or erodes) that liquidity. balance. Over the past two years, Vibe Growth has spent a lot of money. While investors no doubt expect this situation to reverse in due course, this clearly means its use of debt is riskier.
In summary
While it’s always a good idea to investigate a company’s debt, in this case Vibe Growth has US $ 11.4 million in net cash and a decent balance sheet. And we liked the appearance of the 752% year-over-year growth in EBIT from last year. We are therefore not concerned with Vibe Growth’s use of debt. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. These risks can be difficult to spot. Every business has them, and we’ve spotted 3 warning signs for Vibe Growth you should know.
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-flow net-growth stocks.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.
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