Here's Why VirTra (NASDAQ:VTSI) Can Manage Its Debt Responsibly

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.' 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. As with many other companies VirTra, Inc. (NASDAQ:VTSI) makes use of debt. But the more important question is: how much risk is that debt creating?

Our free stock report includes 4 warning signs investors should be aware of before investing in VirTra. Read for free now.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does VirTra Carry?

As you can see below, VirTra had US$7.73m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$17.6m in cash, leading to a US$9.88m net cash position.

A Look At VirTra's Liabilities

The latest balance sheet data shows that VirTra had liabilities of US$9.97m due within a year, and liabilities of US$9.84m falling due after that. Offsetting these obligations, it had cash of US$17.6m as well as receivables valued at US$11.0m due within 12 months. So it can boast US$8.81m more liquid assets than total liabilities.

This surplus suggests that VirTra is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that VirTra has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for VirTra

It is just as well that VirTra's load is not too heavy, because its EBIT was down 64% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. 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 VirTra'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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While VirTra 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. In the last three years, VirTra created free cash flow amounting to 16% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case VirTra has US$9.88m in net cash and a decent-looking balance sheet. So we are not troubled with VirTra's debt use. 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. For example, we've discovered 4 warning signs for VirTra (1 is a bit concerning!) 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.