David Iben said it well when he said: “Volatility is not a risk that interests us. What matters to us is to avoid the permanent loss of capital. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We can see that Vivakor, Inc. (NASDAQ: VIVK) uses debt in its business. But does this debt worry shareholders?
When is debt dangerous?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we think about a company’s use of debt, we first look at cash and debt together.
See our latest analysis for Vivakor
What is Vivakor’s net debt?
The image below, which you can click on for more details, shows that as of September 2021, Vivakor had $14.2 million in debt, up from $6.73 million in one year. However, he has $8.62 million in cash to offset this, resulting in a net debt of approximately $5.54 million.
A look at Vivakor’s responsibilities
Zooming in on the latest balance sheet data, we can see that Vivakor had liabilities of US$8.29 million due within 12 months and liabilities of US$13.8 million due beyond. In return, he had $8.62 million in cash and $845 in receivables to be received within 12 months. It therefore has liabilities totaling $13.5 million more than its cash and short-term receivables, combined.
Of course, Vivakor has a market capitalization of US$68.9 million, so those liabilities are probably manageable. That said, it is clear that we must continue to monitor its record, lest it deteriorate. There is no doubt that we learn the most about debt from the balance sheet. But it is the profits of Vivakor that will influence the balance sheet in the future. So, if you want to know more about its earnings, it may be worth checking out this graph of its long-term trend.
Over 12 months, Vivakor recorded a loss in EBIT, and saw its turnover fall to US$1.1 million, a drop of 21%. It makes us nervous, to say the least.
While Vivakor’s declining revenue is about as comforting as a wet blanket, its earnings before interest and tax (EBIT) loss is arguably even less appealing. Its EBIT loss was US$7.5 million. When we look at this and recall the liabilities on its balance sheet, versus cash, it seems unwise to us that the company has liabilities. So we think its balance sheet is a little stretched, but not beyond repair. However, it doesn’t help that he’s burned through $6.0 million in cash in the past year. In short, it’s a really risky title. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Know that Vivakor displays 6 warning signs in our investment analysis and 2 of them concern…
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.
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.