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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'. So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Vaisala Oyj (HEL:VAIAS) makes use of debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Vaisala Oyj
What Is Vaisala Oyj's Net Debt?
As you can see below, Vaisala Oyj had €40.2m of debt, at December 2019, which is about the same as the year before. You can click the chart for greater detail. However, it does have €56.4m in cash offsetting this, leading to net cash of €16.2m.
A Look At Vaisala Oyj's Liabilities
The latest balance sheet data shows that Vaisala Oyj had liabilities of €139.9m due within a year, and liabilities of €23.3m falling due after that. Offsetting this, it had €56.4m in cash and €97.7m in receivables that were due within 12 months. So it has liabilities totalling €9.10m more than its cash and near-term receivables, combined.
Having regard to Vaisala Oyj's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €1.06b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Vaisala Oyj also has more cash than debt, so we're pretty confident it can manage its debt safely.
And we also note warmly that Vaisala Oyj grew its EBIT by 19% last year, making its debt load easier to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Vaisala Oyj 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.