VusionGroup (EPA:VU) Seems To Use Debt Rather Sparingly

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.' 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. As with many other companies VusionGroup S.A. (EPA:VU) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does VusionGroup Carry?

The image below, which you can click on for greater detail, shows that VusionGroup had debt of €131.0m at the end of June 2025, a reduction from €164.7m over a year. But on the other hand it also has €644.1m in cash, leading to a €513.1m net cash position.

How Healthy Is VusionGroup's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that VusionGroup had liabilities of €1.35b due within 12 months and liabilities of €201.9m due beyond that. On the other hand, it had cash of €644.1m and €383.5m worth of receivables due within a year. So its liabilities total €522.9m more than the combination of its cash and short-term receivables.

Since publicly traded VusionGroup shares are worth a total of €3.33b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, VusionGroup also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for VusionGroup

Also relevant is that VusionGroup has grown its EBIT by a very respectable 29% in the last year, thus enhancing its ability to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if VusionGroup 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. While VusionGroup has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, VusionGroup actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While VusionGroup does have more liabilities than liquid assets, it also has net cash of €513.1m. The cherry on top was that in converted 642% of that EBIT to free cash flow, bringing in €404m. So we don't think VusionGroup's use of debt is risky. Even though VusionGroup lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.