Is BE Semiconductor Industries (AMS:BESI) using too much debt?
Warren Buffett said: “Volatility is far from synonymous with risk. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We note that BE Semiconductor Industries SA (AMS:BESI) has debt on its balance sheet. But the real question is whether this debt makes the business risky.
When is debt a problem?
Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. The first thing to do when considering how much debt a business has is to look at its cash and debt together.
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How much debt does BE Semiconductor Industries have?
You can click on the graph below for historical figures, but it shows that in June 2022, BE Semiconductor Industries had debt of €317.6 million, an increase from €304.6 million , over one year. However, his balance sheet shows that he holds €576.6m in cash, so he actually has €259.0m in net cash.
How healthy is BE Semiconductor Industries’ balance sheet?
The latest balance sheet data shows that BE Semiconductor Industries had liabilities of €169.4 million due within one year, and liabilities of €362.8 million falling due thereafter. In return, it had €576.6 million in cash and €262.6 million in receivables due within 12 months. It can therefore claim 306.9 million euros more cash than total Passives.
This short-term liquidity is a sign that BE Semiconductor Industries could probably repay its debt easily, as its balance sheet is far from stretched. Simply put, the fact that BE Semiconductor Industries has more cash than debt is arguably a good indication that it can safely manage its debt.
On top of that, we are pleased to report that BE Semiconductor Industries increased its EBIT by 42%, reducing the specter of future debt repayments. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine BE Semiconductor Industries’ ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.
Finally, a company can only repay its debts with cold hard cash, not with book profits. Although BE Semiconductor Industries has net cash on its balance sheet, it’s always worth looking at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how fast it’s growing. builds (or erodes) cash balance. Over the past three years, BE Semiconductor Industries has produced strong free cash flow equivalent to 74% of its EBIT, which is what we expected. This cold hard cash allows him to reduce his debt whenever he wants.
While we sympathize with investors who find debt a concern, you should bear in mind that BE Semiconductor Industries has a net cash position of 259.0 million euros, as well as more liquid assets than liabilities. . And it has impressed us with its 42% EBIT growth over the past year. So is BE Semiconductor Industries’ debt a risk? This does not seem to us to be the case. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks reside on the balance sheet, far from it. Example: we have identified 3 warning signs for BE Semiconductor Industries you should be aware.
Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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