Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. We can see that Vivakor, Inc. (NASDAQ: VIVK) uses debt in its business. But the real question is whether this debt makes the business risky.
What risk does debt carry?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, 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. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest review for Vivakor
What is Vivakor’s debt?
The image below, which you can click on for more details, shows that Vivakor had $10.1 million in debt at the end of March 2022, a reduction from $11.5 million year-over-year. However, he has $10.3 million in cash to offset this, which translates to a net cash of $199.9,000.
A look at Vivakor’s responsibilities
The latest balance sheet data shows that Vivakor had liabilities of $5.09 million due within the year, and liabilities of $13.2 million due thereafter. On the other hand, it had liquidities of 10.3 million dollars and 845 dollars of receivables at less than one year. It therefore has liabilities totaling $7.96 million more than its cash and short-term receivables, combined.
This shortfall is not that bad as Vivakor is worth $29.8 million and therefore could probably raise enough capital to shore up its balance sheet, should the need arise. However, it is always worth taking a close look at its ability to repay debt. While it has liabilities worth noting, Vivakor also has more cash than debt, so we’re pretty confident it can manage its debt safely. There is no doubt that we learn the most about debt from the balance sheet. But you can’t look at debt in total isolation; since Vivakor will need income to repay this debt. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.
Year-over-year, Vivakor reported revenue of $993,000, a 75% gain, although it reported no earnings before interest and taxes. The shareholders probably have their fingers crossed that she can make a profit.
So how risky is Vivakor?
Statistically speaking, businesses that lose money are riskier than those that make money. And we note that Vivakor posted a loss in earnings before interest and taxes (EBIT) over the past year. And during the same period, it recorded a negative free cash outflow of US$6.7 million and recorded a book loss of US$16 million. Given that it only has net cash of $199.9,000, the company may need to raise more capital if it does not break even soon. Vivakor’s revenue growth has shone over the past year, so it may well be able to turn a profit in due course. By investing before these profits, shareholders take on more risk in the hope of greater rewards. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, Vivakor has 5 warning signs (and 2 that shouldn’t be ignored) that we think you should know about.
If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-neutral growth stocks right away.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
Comments are closed.