Is VOXX International (NASDAQ:VOXX) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that VOXX International Corporation (NASDAQ:VOXX) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

Check out our latest analysis for VOXX International

How Much Debt Does VOXX International Carry?

You can click the graphic below for the historical numbers, but it shows that VOXX International had US$6.93m of debt in August 2021, down from US$27.9m, one year before. However, its balance sheet shows it holds US$41.1m in cash, so it actually has US$34.1m net cash.

A Look At VOXX International's Liabilities

Zooming in on the latest balance sheet data, we can see that VOXX International had liabilities of US$133.8m due within 12 months and liabilities of US$26.2m due beyond that. Offsetting this, it had US$41.1m in cash and US$99.5m in receivables that were due within 12 months. So it has liabilities totalling US$19.4m more than its cash and near-term receivables, combined.

Given VOXX International has a market capitalization of US$239.2m, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, VOXX International boasts net cash, so it's fair to say it does not have a heavy debt load!

Although VOXX International made a loss at the EBIT level, last year, it was also good to see that it generated US$23m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine VOXX International'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While VOXX International 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. Over the last year, VOXX International actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that VOXX International has US$34.1m in net cash. The cherry on top was that in converted 120% of that EBIT to free cash flow, bringing in US$28m. So we don't think VOXX International's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for VOXX International you should be aware of.

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.

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.

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