Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Vault Intelligence Limited (ASX:VLT) makes use of debt. But the more important question is: how much risk is that debt creating?
What Risk Does Debt Bring?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
See our latest analysis for Vault Intelligence
What Is Vault Intelligence's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Vault Intelligence had AU$123.6k of debt in June 2019, down from AU$154.8k, one year before. But on the other hand it also has AU$2.43m in cash, leading to a AU$2.31m net cash position.
How Strong Is Vault Intelligence's Balance Sheet?
We can see from the most recent balance sheet that Vault Intelligence had liabilities of AU$3.04m falling due within a year, and liabilities of AU$102.5k due beyond that. Offsetting this, it had AU$2.43m in cash and AU$430.8k in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$275.3k.
This state of affairs indicates that Vault Intelligence's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the AU$30.9m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Vault Intelligence boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Vault Intelligence 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.