Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital. 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 Voztelecom Oigaa360 S.A. (BME:VOZ) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Voztelecom Oigaa360
How Much Debt Does Voztelecom Oigaa360 Carry?
You can click the graphic below for the historical numbers, but it shows that as of March 2019 Voztelecom Oigaa360 had €3.13m of debt, an increase on €2.30m, over one year. However, it does have €2.84m in cash offsetting this, leading to net debt of about €284.3k.
A Look At Voztelecom Oigaa360's Liabilities
According to the last reported balance sheet, Voztelecom Oigaa360 had liabilities of €2.64m due within 12 months, and liabilities of €4.50m due beyond 12 months. Offsetting these obligations, it had cash of €2.84m as well as receivables valued at €597.9k due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €3.70m.
Of course, Voztelecom Oigaa360 has a market capitalization of €19.0m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Carrying virtually no net debt, Voztelecom Oigaa360 has a very light debt load indeed. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Voztelecom Oigaa360 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.