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.’ 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, Vislink Technologies, Inc. (NASDAQ:VISL) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.

How Much Debt Does Vislink Technologies Carry?

The image below, which you can click on for greater detail, shows that at June 2021 Vislink Technologies had debt of US$1.85m, up from US$1.58m in one year. However, it does have US$55.5m in cash offsetting this, leading to net cash of US$53.7m.

How Strong Is Vislink Technologies’ Balance Sheet?

We can see from the most recent balance sheet that Vislink Technologies had liabilities of US$13.1m falling due within a year, and liabilities of US$1.31m due beyond that. On the other hand, it had cash of US$55.5m and US$9.07m worth of receivables due within a year. So it actually has US$50.1m more liquid assets than total liabilities.

This surplus strongly suggests that Vislink Technologies has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Vislink Technologies has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Vislink Technologies’s earnings that will influence how the balance sheet holds up in the future. So if you’re keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Vislink Technologies made a loss at the EBIT level, and saw its revenue drop to US$23m, which is a fall of 6.4%. We would much prefer see growth.

So How Risky Is Vislink Technologies?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Vislink Technologies had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$15m and booked a US$16m accounting loss. Given it only has net cash of US$53.7m, the company may need to raise more capital if it doesn’t reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn’t produce free cash flow regularly.