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. We note that Viasat, Inc. (NASDAQ:VSAT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Viasat Carry?

The image below, which you can click on for greater detail, shows that at March 2024 Viasat had debt of US$7.16b, up from US$2.42b in one year. However, because it has a cash reserve of US$1.90b, its net debt is less, at about US$5.26b.

How Healthy Is Viasat's Balance Sheet?

According to the last reported balance sheet, Viasat had liabilities of US$1.30b due within 12 months, and liabilities of US$9.96b due beyond 12 months. Offsetting this, it had US$1.90b in cash and US$939.7m in receivables that were due within 12 months. So it has liabilities totalling US$8.42b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$1.82b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Viasat would likely require a major re-capitalisation if it had to pay its creditors today. 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 Viasat'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.

In the last year Viasat wasn't profitable at an EBIT level, but managed to grow its revenue by 68%, to US$4.3b. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Viasat still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping US$741m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through US$851m in the last year. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Viasat you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com