Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Volt Information Sciences, Inc. (NYSEMKT:VISI) makes use of debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Volt Information Sciences's Net Debt?
As you can see below, at the end of April 2019, Volt Information Sciences had US$54.2m of debt, up from US$48.8m a year ago. Click the image for more detail. However, it does have US$42.9m in cash offsetting this, leading to net debt of about US$11.3m.
How Strong Is Volt Information Sciences's Balance Sheet?
According to the last reported balance sheet, Volt Information Sciences had liabilities of US$97.5m due within 12 months, and liabilities of US$87.3m due beyond 12 months. Offsetting these obligations, it had cash of US$42.9m as well as receivables valued at US$139.2m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
Since publicly traded Volt Information Sciences shares are worth a total of US$73.2m, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Volt Information Sciences can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
In the last year Volt Information Sciences actually shrunk its revenue by 6.1%, to US$1.0b. We would much prefer see growth.
Over the last twelve months Volt Information Sciences produced an earnings before interest and tax (EBIT) loss. Its EBIT loss was a whopping US$7.9m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$2.8m of cash over the last year. So to be blunt we think it is risky. For riskier companies like Volt Information Sciences I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.
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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