Is Vera Bradley (NASDAQ:VRA) Using Too Much Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Vera Bradley, Inc. (NASDAQ:VRA) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Vera Bradley's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of August 2025 Vera Bradley had US$10.0m of debt, an increase on none, over one year. But it also has US$15.2m in cash to offset that, meaning it has US$5.18m net cash.

A Look At Vera Bradley's Liabilities

According to the last reported balance sheet, Vera Bradley had liabilities of US$57.7m due within 12 months, and liabilities of US$68.0m due beyond 12 months. Offsetting these obligations, it had cash of US$15.2m as well as receivables valued at US$17.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$93.1m.

Given this deficit is actually higher than the company's market capitalization of US$69.8m, we think shareholders really should watch Vera Bradley's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. Vera Bradley boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Vera Bradley 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.

Check out our latest analysis for Vera Bradley

Over 12 months, Vera Bradley made a loss at the EBIT level, and saw its revenue drop to US$333m, which is a fall of 19%. We would much prefer see growth.

So How Risky Is Vera Bradley?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Vera Bradley had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$34m of cash and made a loss of US$85m. With only US$5.18m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Vera Bradley (including 1 which is significant) .

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.