These 4 measures indicate that B2W – Companhia Digital (BVMF: BTOW3) uses debt reasonably well
Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Like many other companies B2W – Digital Company (BVMF: BTOW3) uses debt. But the real question is whether this debt makes the business risky.
When is debt dangerous?
Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
Discover our latest B2W analysis – Companhia Digital
How much debt does B2W – Companhia Digital have?
The image below, which you can click for more details, shows that B2W – Companhia Digital had a debt of R $ 5.07 billion at the end of March 2021, a reduction of R $ 6.79 billion on a year. However, he has 7.35 billion reais in cash to compensate for this, which leads to a net cash position of 2.28 billion reais.
A look at B2W – The responsibilities of Companhia Digital
We can see from the most recent balance sheet that B2W – Companhia Digital had R $ 5.27 billion liabilities due within one year and R $ 5.13 billion liabilities beyond. In return, he had 7.35 billion reais in cash and 2.62 billion reais in receivables due within 12 months. Thus, its liabilities exceed the sum of its cash and (short-term) receivables by R $ 421.5 million.
Considering the size of B2W – Companhia Digital, it appears that its liquid assets are well balanced with its total liabilities. So the R $ 37.4 billion company is highly unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. Despite its notable liabilities, B2W – Companhia Digital has a net cash flow, so it is fair to say that it does not have a heavy debt load!
It is important to note that B2W – Companhia Digital has increased its EBIT by 97% over the past twelve months, and this growth will make it easier to process its debt. The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately the future profitability of the business will decide whether B2W – Companhia Digital can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
But our last consideration is also important, because a company cannot pay its debts with paper profits; he needs hard cash. Although B2W – Companhia Digital has net cash on its balance sheet, it is still worth examining its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how fast it is. this cash balance is built (or eroded). In the past two years, B2W – Companhia Digital has spent a lot of money. While this may be the result of spending on growth, it makes debt much riskier.
We could understand if investors are worried about B2W – Companhia Digital’s liabilities, but we can be reassured that it has net cash of R $ 2.28 billion. And it impressed us with its EBIT growth of 97% over last year. So we have no problem with the use of debt by B2W – Companhia Digital. 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 off the balance sheet. Note that B2W – Companhia Digital displays 1 warning sign in our investment analysis , you must know…
If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.
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