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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 GE Vernova Inc. (NYSE:GEV) makes use of debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
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. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for GE Vernova
What Is GE Vernova's Net Debt?
As you can see below, GE Vernova had US$70.0m of debt at December 2024, down from US$155.0m a year prior. But on the other hand it also has US$8.21b in cash, leading to a US$8.14b net cash position.
How Strong Is GE Vernova's Balance Sheet?
The latest balance sheet data shows that GE Vernova had liabilities of US$31.7b due within a year, and liabilities of US$9.21b falling due after that. Offsetting these obligations, it had cash of US$8.21b as well as receivables valued at US$15.3b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$17.4b.
Given GE Vernova has a humongous market capitalization of US$102.2b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, GE Vernova also has more cash than debt, so we're pretty confident it can manage its debt safely.
Better yet, GE Vernova grew its EBIT by 1,245% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if GE Vernova 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.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. GE Vernova may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, GE Vernova actually produced more free cash flow than EBIT over the last two years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.