Vizione Holdings Berhad (KLSE:VIZIONE) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. We can see that Vizione Holdings Berhad (KLSE:VIZIONE) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Vizione Holdings Berhad

How Much Debt Does Vizione Holdings Berhad Carry?

As you can see below, at the end of February 2022, Vizione Holdings Berhad had RM75.5m of debt, up from RM46.8m a year ago. Click the image for more detail. However, it does have RM103.7m in cash offsetting this, leading to net cash of RM28.3m.

How Healthy Is Vizione Holdings Berhad's Balance Sheet?

We can see from the most recent balance sheet that Vizione Holdings Berhad had liabilities of RM327.7m falling due within a year, and liabilities of RM45.5m due beyond that. Offsetting these obligations, it had cash of RM103.7m as well as receivables valued at RM589.8m due within 12 months. So it can boast RM320.3m more liquid assets than total liabilities.

This excess liquidity is a great indication that Vizione Holdings Berhad's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Vizione Holdings Berhad has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Vizione Holdings Berhad's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Vizione Holdings Berhad had a loss before interest and tax, and actually shrunk its revenue by 3.1%, to RM300m. We would much prefer see growth.

So How Risky Is Vizione Holdings Berhad?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Vizione Holdings Berhad lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through RM53m of cash and made a loss of RM83m. With only RM28.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 4 warning signs with Vizione Holdings Berhad (at least 2 which are significant) , and understanding them should be part of your investment process.

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.

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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.