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. We can see that Viasat, Inc. (NASDAQ:VSAT) does use debt in its business. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for Viasat
How Much Debt Does Viasat Carry?
The image below, which you can click on for greater detail, shows that at September 2023 Viasat had debt of US$7.26b, up from US$2.64b in one year. On the flip side, it has US$1.96b in cash leading to net debt of about US$5.30b.
A Look At Viasat's Liabilities
We can see from the most recent balance sheet that Viasat had liabilities of US$1.55b falling due within a year, and liabilities of US$10.3b due beyond that. Offsetting these obligations, it had cash of US$1.96b as well as receivables valued at US$1.43b due within 12 months. So it has liabilities totalling US$8.45b more than its cash and near-term receivables, combined.
This deficit casts a shadow over the US$3.05b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Viasat would likely require a major re-capitalisation if it had to pay its creditors today. 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 Viasat 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 Viasat wasn't profitable at an EBIT level, but managed to grow its revenue by 34%, to US$3.3b. 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. Its EBIT loss was a whopping US$943m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. Nevertheless, we would not bet on it given that it vaporized US$888m 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. 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. Case in point: We've spotted 2 warning signs for Viasat you should be aware of, and 1 of them shouldn't be ignored.
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.