Is Veris (ASX:VRS) Weighed On By Its Debt Load?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Veris Limited (ASX:VRS) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Veris's Debt?

The image below, which you can click on for greater detail, shows that Veris had debt of AU$4.35m at the end of December 2024, a reduction from AU$4.76m over a year. But it also has AU$17.6m in cash to offset that, meaning it has AU$13.3m net cash.

How Strong Is Veris' Balance Sheet?

According to the last reported balance sheet, Veris had liabilities of AU$18.5m due within 12 months, and liabilities of AU$14.3m due beyond 12 months. Offsetting this, it had AU$17.6m in cash and AU$14.8m in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

Having regard to Veris' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the AU$29.0m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Veris 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 you can't view debt in total isolation; since Veris 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.

View our latest analysis for Veris

Over 12 months, Veris made a loss at the EBIT level, and saw its revenue drop to AU$91m, which is a fall of 5.9%. That's not what we would hope to see.

So How Risky Is Veris?

While Veris lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow AU$6.8m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Veris you should be aware of.

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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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.