Does Veeco Instruments (NASDAQ: VECO) have a healthy balance sheet?
Warren Buffett said: “Volatility is far from synonymous with risk”. So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We can see that Veeco Instruments Inc. (NASDAQ: VECO) uses debt in its business. But does this debt worry shareholders?
Why Does Debt Bring Risk?
Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we think of a business’s use of debt, we first look at cash flow and debt together.
Check out our latest review for Veeco Instruments
What is the net debt of Veeco Instruments?
As you can see below, Veeco Instruments had $ 328.2 million in debt, as of June 2021, which is roughly the same as the year before. You can click on the graph for more details. However, it has US $ 329.4 million in cash offsetting this, which leads to a net cash position of US $ 1.17 million.
Is Veeco Instruments’ balance sheet healthy?
According to the latest published balance sheet, Veeco Instruments had liabilities of US $ 179.4 million due within 12 months and liabilities of US $ 372.4 million due beyond 12 months. On the other hand, he had cash of US $ 329.4 million and receivables worth US $ 126.5 million within a year. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by $ 95.9 million.
Given that Veeco Instruments’ publicly traded shares are worth a total of US $ 1.11 billion, it seems unlikely that this level of liabilities is a major threat. Having said that, it is clear that we must continue to monitor his record lest it get worse. Despite its notable liabilities, Veeco Instruments has a net cash flow, so it is fair to say that it does not have a heavy debt load!
Notably, Veeco Instruments EBIT was higher than Elon Musk’s, gaining a whopping 8.548% from last year. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Veeco Instruments can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. Veeco Instruments may have net cash on the balance sheet, but it is always interesting to see the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its capacity. to manage debt. Fortunately for all shareholders, Veeco Instruments has actually generated more free cash flow than EBIT over the past two years. This kind of solid money conversion makes us as excited as the crowd when the beat drops at a Daft Punk concert.
While it always makes sense to look at a company’s total liabilities, it is very reassuring that Veeco Instruments has $ 1.17 million in net cash. The icing on the cake was that he converted 108% of that EBIT into free cash flow, bringing in US $ 32 million. We therefore do not believe that the use of debt by Veeco Instruments is risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist off the balance sheet. Note that Veeco Instruments displays 2 warning signs in our investment analysis , and 1 of them makes us a little uncomfortable …
Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.
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