Yahoo Finance Is Vivakor (NASDAQ:VIVK) Using Too Much Debt?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Vivakor, Inc. (NASDAQ:VIVK) does carry debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
Check out our latest analysis for Vivakor
How Much Debt Does Vivakor Carry?
As you can see below, Vivakor had US$10.1m of debt at March 2022, down from US$11.5m a year prior. However, its balance sheet shows it holds US$10.3m in cash, so it actually has US$199.9k net cash.
How Strong Is Vivakor's Balance Sheet?
We can see from the most recent balance sheet that Vivakor had liabilities of US$5.09m falling due within a year, and liabilities of US$13.2m due beyond that. Offsetting these obligations, it had cash of US$10.3m as well as receivables valued at US$845 due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$7.96m.
This deficit isn't so bad because Vivakor is worth US$29.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Vivakor also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Vivakor 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.
Over 12 months, Vivakor reported revenue of US$993k, which is a gain of 75%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.
So How Risky Is Vivakor?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Vivakor had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$6.7m and booked a US$16m accounting loss. Given it only has net cash of US$199.9k, the company may need to raise more capital if it doesn't reach break-even soon. Vivakor's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 5 warning signs for Vivakor (2 are a bit concerning) you should be aware of.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
