Is Viasat (NASDAQ:VSAT) Using Debt In A Risky Way?

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. Importantly, Viasat, Inc. (NASDAQ:VSAT) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 Viasat

What Is Viasat's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Viasat had US$7.26b of debt, an increase on US$2.90b, over one year. On the flip side, it has US$1.65b in cash leading to net debt of about US$5.60b.

How Strong Is Viasat's Balance Sheet?

According to the last reported balance sheet, Viasat had liabilities of US$1.38b due within 12 months, and liabilities of US$10.1b due beyond 12 months. Offsetting this, it had US$1.65b in cash and US$1.45b in receivables that were due within 12 months. So it has liabilities totalling US$8.41b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the US$2.02b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Viasat would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Viasat 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.

In the last year Viasat wasn't profitable at an EBIT level, but managed to grow its revenue by 52%, to US$3.8b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Viasat still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$58m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized US$969m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we think this stock is risky, like walking through a dirty dog park with a mask on. 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 instance, we've identified 2 warning signs for Viasat (1 is concerning) 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.