Veritone (NASDAQ:VERI) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies Veritone, Inc. (NASDAQ:VERI) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Veritone

What Is Veritone's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2022 Veritone had US$195.7m of debt, an increase on none, over one year. However, it does have US$220.5m in cash offsetting this, leading to net cash of US$24.8m.

How Healthy Is Veritone's Balance Sheet?

The latest balance sheet data shows that Veritone had liabilities of US$170.4m due within a year, and liabilities of US$211.3m falling due after that. Offsetting these obligations, it had cash of US$220.5m as well as receivables valued at US$68.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$93.2m.

This deficit isn't so bad because Veritone is worth US$236.0m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Veritone 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 Veritone'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 Veritone wasn't profitable at an EBIT level, but managed to grow its revenue by 109%, to US$146m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Veritone?

Although Veritone had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$938k. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. One positive is that Veritone is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But that doesn't change our opinion that the stock is 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Veritone you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.