Warren Buffett said: “Volatility is far from synonymous with risk. 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. Like many other companies voxeljet SA (NASDAQ:VJET) uses debt. But the more important question is: what risk does this debt create?
When is debt dangerous?
Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. When we think about a company’s use of debt, we first look at cash and debt together.
What is voxeljet net debt?
The graph below, which you can click on for more details, shows that voxeljet had a debt of 23.7 million euros in September 2021; about the same as the previous year. However, because it has a cash reserve of €22.2 million, its net debt is lower, at around €1.46 million.
How strong is voxeljet’s balance sheet?
According to the last published balance sheet, voxeljet had liabilities of 11.5 million euros maturing within 12 months and liabilities of 27.7 million euros maturing beyond 12 months. On the other hand, it had €22.2 million in cash and €5.00 million in receivables at less than one year. Its liabilities therefore total €12.0 million more than the combination of its cash and short-term receivables.
While that might sound like a lot, it’s not too bad since voxeljet has a market cap of €44.2 million, so it could probably bolster its balance sheet by raising capital if needed. But it is clear that it is essential to examine closely whether it can manage its debt without dilution. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future earnings, more than anything, that will determine voxeljet’s ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Last year, voxeljet was not profitable in terms of EBIT, but managed to increase its turnover by 2.4%, to 23 million euros. This rate of growth is a bit slow for our liking, but it takes all types to make a world.
Caveat Emptor
Over the last twelve months, voxeljet has recorded a loss of earnings before interest and taxes (EBIT). Indeed, it lost a very considerable 12 million euros in terms of EBIT. Considering that alongside the liabilities mentioned above, this doesn’t give us much confidence that the company should use so much debt. So we think its balance sheet is a little stretched, but not beyond repair. Another reason for caution, he lost 6.5 million euros in negative free cash flow over the last twelve months. So suffice it to say that we consider the stock to be very risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. Example: we have identified 4 warning signs for voxeljet you need to be aware of, and 1 of them can’t be ignored.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.
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