We Think Vishay Precision Group (NYSE:VPG) Can Stay On Top Of Its Debt

Simply Wall St
·4 min read

Warren Buffett famously said, '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 Vishay Precision Group, Inc. (NYSE:VPG) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Vishay Precision Group

How Much Debt Does Vishay Precision Group Carry?

The image below, which you can click on for greater detail, shows that Vishay Precision Group had debt of US$40.6m at the end of December 2020, a reduction from US$44.5m over a year. However, it does have US$98.4m in cash offsetting this, leading to net cash of US$57.8m.

debt-equity-history-analysis
debt-equity-history-analysis

A Look At Vishay Precision Group's Liabilities

We can see from the most recent balance sheet that Vishay Precision Group had liabilities of US$47.5m falling due within a year, and liabilities of US$96.5m due beyond that. Offsetting these obligations, it had cash of US$98.4m as well as receivables valued at US$45.3m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Vishay Precision Group's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$459.4m company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Vishay Precision Group boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that Vishay Precision Group has seen its EBIT plunge 19% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Vishay Precision Group 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Vishay Precision Group 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. During the last three years, Vishay Precision Group produced sturdy free cash flow equating to 54% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Vishay Precision Group has US$57.8m in net cash. So we are not troubled with Vishay Precision Group's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Vishay Precision Group that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

This article by Simply Wall St is general in nature. 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.

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