The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.NEW YORK ( MagicDiligence) -- Due to its technique of using enterprise value in lieu of market capitalization, Joel Greenblatt's Magic Formula Investing (MFI) strategy generally does a good job of weeding out firms with poor balance sheets. However, occasionally there are stocks with high debt burdens that do slip through the screen, although it generally takes a very cheap stock price to make up for the debt penalty that enterprise value applies. High debt burdens cause several issues. In extreme cases (one of which exists below), debt can create a situation where the solvency of the company can be at risk when interest payments or debt maturities cannot be met, or when financial ratios exceed covenants on the debt. More often, however, large debt obligations limit the ways in which a company can generate returns for shareholders. Interest payments reduce the amount of cash that can be invested in growing the business, or in rewarding shareholders through dividend hikes and share repurchases. These firms are often required to retain more of their free cash flow to meet maturity obligations and leverage requirements. Meanwhile, less burdened competitors can take advantage by being more aggressive on pricing, or by investing more aggressively through R&D or marketing. Clearly, having a poor balance sheet limits an investment's attractiveness in many ways. Below are five current Magic Formula stocks that have total debt burdens of two or more times the cash listed on the balance sheet: Vonage ( VG) Total cash: $63 million Total debt: $126 million Free cash flow run rate: about $95 million Interest coverage (ttm): 2.7 Business trends: modestly negative Vonage, the well-known voice-over-IP telephony pioneer, might surprise many to be a Magic Formula stock. On an operating and cash flow basis, the firm has actually been quite profitable for over two years running. Vonage's legacy debt had poor terms, but it was refinanced at the end of last year. The 2.7 interest coverage ratio looks worrisome, but after refinancing, Vonage's coverage has improved to over five times in the last two quarters. Additionally, robust free cash flows, minimal near-term maturities, a fair amount of cash on the balance sheet, and modest declines in revenue (low single digits) put the firm on a financially safe footing.