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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, voxeljet AG (NYSE:VJET) does carry debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
What Is voxeljet's Net Debt?
The chart below, which you can click on for greater detail, shows that voxeljet had €17.6m in debt in June 2019; about the same as the year before. However, it also had €13.8m in cash, and so its net debt is €3.71m.
How Strong Is voxeljet's Balance Sheet?
According to the last reported balance sheet, voxeljet had liabilities of €6.12m due within 12 months, and liabilities of €20.7m due beyond 12 months. Offsetting these obligations, it had cash of €13.8m as well as receivables valued at €5.79m due within 12 months. So it has liabilities totalling €7.21m more than its cash and near-term receivables, combined.
voxeljet has a market capitalization of €34.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if voxeljet can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year voxeljet managed to grow its revenue by 11%, to €26m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Importantly, voxeljet had negative earnings before interest and tax (EBIT), over the last year. Its EBIT loss was a whopping €11m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €13m of cash over the last year. So suffice it to say we consider the stock very risky. For riskier companies like voxeljet I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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