Is Volt Information Sciences Inc’s (NYSEMKT:VISI) Balance Sheet A Threat To Its Future?

Investors are always looking for growth in small-cap stocks like Volt Information Sciences Inc (NYSEMKT:VISI), with a market cap of US$75.73m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into VISI here.

How does VISI’s operating cash flow stack up against its debt?

Over the past year, VISI has reduced its debt from US$97.05m to US$50.00m , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$40.60m for investing into the business. Moreover, VISI has generated cash from operations of US$4.57m over the same time period, resulting in an operating cash to total debt ratio of 9.14%, meaning that VISI’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In VISI’s case, it is able to generate 0.091x cash from its debt capital.

Can VISI pay its short-term liabilities?

With current liabilities at US$162.96m, it appears that the company has been able to meet these commitments with a current assets level of US$244.84m, leading to a 1.5x current account ratio. For Professional Services companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

AMEX:VISI Historical Debt June 22nd 18
AMEX:VISI Historical Debt June 22nd 18

Is VISI’s debt level acceptable?

With debt reaching 72.77% of equity, VISI may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.

Next Steps:

At its current level of cash flow coverage, VISI has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure VISI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Volt Information Sciences to get a more holistic view of the stock by looking at:

  1. Valuation: What is VISI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether VISI is currently mispriced by the market.
  2. Historical Performance: What has VISI’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.