Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that VIQ Solutions Inc. (TSE:VQS) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt Dangerous?
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. 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. 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.
Check out our latest analysis for VIQ Solutions
What Is VIQ Solutions's Net Debt?
The chart below, which you can click on for greater detail, shows that VIQ Solutions had US$13.2m in debt in September 2021; about the same as the year before. But on the other hand it also has US$26.0m in cash, leading to a US$12.8m net cash position.
How Strong Is VIQ Solutions' Balance Sheet?
The latest balance sheet data shows that VIQ Solutions had liabilities of US$12.3m due within a year, and liabilities of US$13.6m falling due after that. Offsetting this, it had US$26.0m in cash and US$4.99m in receivables that were due within 12 months. So it actually has US$5.19m more liquid assets than total liabilities.
This surplus suggests that VIQ Solutions has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, VIQ Solutions boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine VIQ Solutions's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Over 12 months, VIQ Solutions reported revenue of US$31m, which is a gain of 4.1%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.