Does VisEra Technologies (TWSE:6789) Have A Healthy Balance Sheet?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that VisEra Technologies Company Ltd. (TWSE:6789) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for VisEra Technologies

What Is VisEra Technologies's Debt?

The image below, which you can click on for greater detail, shows that VisEra Technologies had debt of NT$5.63b at the end of June 2024, a reduction from NT$7.64b over a year. But it also has NT$12.7b in cash to offset that, meaning it has NT$7.03b net cash.

How Strong Is VisEra Technologies' Balance Sheet?

The latest balance sheet data shows that VisEra Technologies had liabilities of NT$4.72b due within a year, and liabilities of NT$3.16b falling due after that. Offsetting these obligations, it had cash of NT$12.7b as well as receivables valued at NT$2.05b due within 12 months. So it actually has NT$6.83b more liquid assets than total liabilities.

This surplus suggests that VisEra Technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that VisEra Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

But the bad news is that VisEra Technologies has seen its EBIT plunge 16% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine VisEra Technologies's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While VisEra Technologies has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, VisEra Technologies produced sturdy free cash flow equating to 66% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that VisEra Technologies has net cash of NT$7.03b, as well as more liquid assets than liabilities. So we are not troubled with VisEra Technologies's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in VisEra Technologies, you may well want to click here to check an interactive graph of its earnings per share history.

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.