VS MEDIA Holdings (NASDAQ:VSME) Is Carrying A Fair Bit Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, VS MEDIA Holdings Limited (NASDAQ:VSME) does carry debt. But the real question is whether this debt is making the company risky.

We've discovered 5 warning signs about VS MEDIA Holdings. View them for free.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is VS MEDIA Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that VS MEDIA Holdings had US$2.95m of debt in December 2024, down from US$3.52m, one year before. However, it also had US$797.7k in cash, and so its net debt is US$2.15m.

A Look At VS MEDIA Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that VS MEDIA Holdings had liabilities of US$5.70m due within 12 months and liabilities of US$205.0k due beyond that. On the other hand, it had cash of US$797.7k and US$1.39m worth of receivables due within a year. So it has liabilities totalling US$3.71m more than its cash and near-term receivables, combined.

VS MEDIA Holdings has a market capitalization of US$7.59m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is VS MEDIA Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for VS MEDIA Holdings

In the last year VS MEDIA Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 3.2%, to US$8.2m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months VS MEDIA Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$6.9m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$1.5m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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. For example VS MEDIA Holdings has 5 warning signs (and 4 which are concerning) we think you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.