Does Vuzix (NASDAQ:VUZI) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Vuzix Corporation (NASDAQ:VUZI) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Vuzix

What Is Vuzix's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Vuzix had US$1.56m of debt, an increase on none, over one year. But on the other hand it also has US$24.9m in cash, leading to a US$23.4m net cash position.

A Look At Vuzix's Liabilities

Zooming in on the latest balance sheet data, we can see that Vuzix had liabilities of US$3.26m due within 12 months and liabilities of US$1.79m due beyond that. Offsetting this, it had US$24.9m in cash and US$1.16m in receivables that were due within 12 months. So it can boast US$21.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Vuzix could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Vuzix boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Vuzix'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.

In the last year Vuzix wasn't profitable at an EBIT level, but managed to grow its revenue by 39%, to US$9.3m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Vuzix?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Vuzix had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$17m and booked a US$26m accounting loss. Given it only has net cash of US$23.4m, the company may need to raise more capital if it doesn't reach break-even soon. With very solid revenue growth in the last year, Vuzix may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Vuzix you should know about.

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. 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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