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Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried “. 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. We can see that Visioneering Technologies, Inc. (ASX: VTI) uses debt in its business. But should shareholders be concerned about its use of debt?
Why Does Debt Bring Risk?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.
Check out our latest review for Visioneering Technologies
What is the debt of Visioneering Technologies?
You can click on the graph below for the historical figures, but it shows that Visioneering Technologies had a debt of US $ 2.91 million in June 2021, up from US $ 3.91 million a year earlier. However, it has $ 15.1 million in cash offsetting that, which leads to a net cash of $ 12.2 million.
How strong is Visioneering Technologies’ balance sheet?
According to the latest published balance sheet, Visioneering Technologies had liabilities of US $ 4.57 million due within 12 months and liabilities of US $ 2.85 million due beyond 12 months. In return, he had $ 15.1 million in cash and $ 1.12 million in receivables due within 12 months. He can therefore avail himself of $ 8.78 million in liquid assets more than total Liabilities.
This excess liquidity is a good indication that Visioneering Technologies’ balance sheet is almost as strong as that of Fort Knox. Given this fact, we believe its track record is as strong as an ox. Simply put, the fact that Visioneering Technologies has more cash than debt is arguably a good indication that it can safely manage its debt. There is no doubt that we learn the most about debt from the balance sheet. But it is future profits, more than anything, that will determine Visioneering Technologies’ ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Over the past year, Visioneering Technologies has not been profitable in terms of EBIT, but has managed to increase its revenue by 14% to US $ 6.2 million. This rate of growth is a bit slow for our taste, but it takes all types to make a world.
So how risky are Visioneering technologies?
Statistically speaking, businesses that lose money are riskier than those that earn it. And over the past year, Visioneering Technologies has recorded a loss of earnings before interest and taxes (EBIT), frankly. Indeed, during this period, he burned $ 5.9 million in cash and recorded a loss of $ 5.6 million. With only $ 12.2 million in net cash on hand, the company may need to raise more capital if it doesn’t hit breakeven soon. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not produce regular free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. Know that Visioneering Technologies shows 4 warning signs in our investment analysis , and 1 of them cannot be ignored …
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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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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