Is VirTra (NASDAQ:VTSI) Using Too Much Debt?

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. Importantly, VirTra, Inc. (NASDAQ:VTSI) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

How Much Debt Does VirTra Carry?

The chart below, which you can click on for greater detail, shows that VirTra had US$7.67m in debt in June 2025; about the same as the year before. But on the other hand it also has US$20.7m in cash, leading to a US$13.0m net cash position.

How Healthy Is VirTra's Balance Sheet?

We can see from the most recent balance sheet that VirTra had liabilities of US$10.0m falling due within a year, and liabilities of US$10.00m due beyond that. On the other hand, it had cash of US$20.7m and US$8.03m worth of receivables due within a year. So it actually has US$8.71m more liquid assets than total liabilities.

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

View our latest analysis for VirTra

The modesty of its debt load may become crucial for VirTra if management cannot prevent a repeat of the 63% cut to EBIT 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 ultimately the future profitability of the business will decide if VirTra can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. VirTra 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. Looking at the most recent three years, VirTra recorded free cash flow of 41% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that VirTra has net cash of US$13.0m, as well as more liquid assets than liabilities. So we don't have any problem with VirTra's use of debt. 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. To that end, you should be aware of the 2 warning signs we've spotted with VirTra .

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.