Yahoo Finance Visioneering Technologies (ASX:VTI) Has Debt But No Earnings; Should You Worry?
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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Visioneering Technologies, Inc. (ASX:VTI) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for Visioneering Technologies
How Much Debt Does Visioneering Technologies Carry?
The image below, which you can click on for greater detail, shows that Visioneering Technologies had debt of US$2.91m at the end of June 2021, a reduction from US$3.91m over a year. But it also has US$15.1m in cash to offset that, meaning it has US$12.2m net cash.
How Healthy Is Visioneering Technologies' Balance Sheet?
According to the last reported balance sheet, Visioneering Technologies had liabilities of US$4.57m due within 12 months, and liabilities of US$2.85m due beyond 12 months. On the other hand, it had cash of US$15.1m and US$1.12m worth of receivables due within a year. So it actually has US$8.78m more liquid assets than total liabilities.
This surplus strongly suggests that Visioneering Technologies has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Visioneering Technologies boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Visioneering Technologies can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
In the last year Visioneering Technologies wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to US$6.2m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
So How Risky Is Visioneering Technologies?
We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Visioneering Technologies had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$5.9m and booked a US$5.6m accounting loss. With only US$12.2m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Visioneering Technologies (1 is a bit unpleasant!) that you should be aware of before investing here.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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.
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