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.' 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. Importantly, Veeco Instruments Inc. (NASDAQ:VECO) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. 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 Veeco Instruments

What Is Veeco Instruments's Net Debt?

As you can see below, Veeco Instruments had US$275.9m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$320.8m in cash, leading to a US$44.9m net cash position.

How Healthy Is Veeco Instruments' Balance Sheet?

The latest balance sheet data shows that Veeco Instruments had liabilities of US$215.2m due within a year, and liabilities of US$311.2m falling due after that. Offsetting these obligations, it had cash of US$320.8m as well as receivables valued at US$163.1m due within 12 months. So its liabilities total US$42.4m more than the combination of its cash and short-term receivables.

Given Veeco Instruments has a market capitalization of US$1.49b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Veeco Instruments boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Veeco Instruments has boosted its EBIT by 56%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Veeco Instruments's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Veeco Instruments may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Veeco Instruments produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. 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$44.9m in net cash. And it impressed us with its EBIT growth of 56% over the last year. So we don't think Veeco Instruments's use of debt is risky. 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. For example - Veeco Instruments has 1 warning sign we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.