Veeco Instruments (NASDAQ:VECO) Could Easily Take On More Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, Veeco Instruments Inc. (NASDAQ:VECO) does carry debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Veeco Instruments

What Is Veeco Instruments's Net Debt?

The chart below, which you can click on for greater detail, shows that Veeco Instruments had US$275.6m in debt in June 2024; about the same as the year before. But on the other hand it also has US$304.9m in cash, leading to a US$29.3m net cash position.

A Look At Veeco Instruments' Liabilities

The latest balance sheet data shows that Veeco Instruments had liabilities of US$204.0m due within a year, and liabilities of US$316.1m falling due after that. On the other hand, it had cash of US$304.9m and US$131.8m worth of receivables due within a year. So it has liabilities totalling US$83.4m more than its cash and near-term receivables, combined.

Of course, Veeco Instruments has a market capitalization of US$1.74b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Veeco Instruments also has more cash than debt, so we're pretty confident it can manage its debt safely.

On top of that, Veeco Instruments grew its EBIT by 56% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Veeco Instruments can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Veeco Instruments 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 most recent three years, Veeco Instruments recorded free cash flow worth 70% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Veeco Instruments has US$29.3m in net cash. And we liked the look of last year's 56% year-on-year EBIT growth. So we don't think Veeco Instruments's use of debt is risky. We'd be very excited to see if Veeco Instruments insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

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.