Is Vista Group International (NZSE:VGL) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Vista Group International Limited (NZSE:VGL) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Vista Group International

How Much Debt Does Vista Group International Carry?

The chart below, which you can click on for greater detail, shows that Vista Group International had NZ$18.6m in debt in December 2023; about the same as the year before. But it also has NZ$28.5m in cash to offset that, meaning it has NZ$9.90m net cash.

How Healthy Is Vista Group International's Balance Sheet?

The latest balance sheet data shows that Vista Group International had liabilities of NZ$57.3m due within a year, and liabilities of NZ$25.8m falling due after that. Offsetting these obligations, it had cash of NZ$28.5m as well as receivables valued at NZ$38.2m due within 12 months. So it has liabilities totalling NZ$16.4m more than its cash and near-term receivables, combined.

Since publicly traded Vista Group International shares are worth a total of NZ$499.1m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Vista Group International boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Vista Group International's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Vista Group International wasn't profitable at an EBIT level, but managed to grow its revenue by 5.8%, to NZ$143m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Vista Group International?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Vista Group International had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through NZ$11m of cash and made a loss of NZ$14m. However, it has net cash of NZ$9.90m, so it has a bit of time before it will need more capital. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. For example, we've discovered 1 warning sign for Vista Group International that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.