Is VisEra Technologies (TWSE:6789) A Risky Investment?

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. We note that VisEra Technologies Company Ltd. (TWSE:6789) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is VisEra Technologies's Debt?

As you can see below, VisEra Technologies had NT$4.41b of debt at December 2024, down from NT$6.68b a year prior. But on the other hand it also has NT$13.4b in cash, leading to a NT$9.01b net cash position.

How Strong Is VisEra Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that VisEra Technologies had liabilities of NT$4.70b due within 12 months and liabilities of NT$1.97b due beyond that. Offsetting these obligations, it had cash of NT$13.4b as well as receivables valued at NT$1.84b due within 12 months. So it actually has NT$8.59b 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.

See our latest analysis for VisEra Technologies

Better yet, VisEra Technologies grew its EBIT by 639% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. 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 VisEra 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. VisEra Technologies may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, VisEra Technologies recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case VisEra Technologies has NT$9.01b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 94% of that EBIT to free cash flow, bringing in NT$3.5b. So is VisEra Technologies's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for VisEra Technologies you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.