We believe First Solar (NASDAQ: FSLR) can stay on top of its debt
David Iben put it well when he said: âVolatility is not a risk we care about. What matters to us is to avoid the permanent loss of capital. ‘ When we think about how risky a business is, we always like to look at its use of debt because debt overload can lead to bankruptcy. Like many other companies Solar Premiere, Inc. (NASDAQ: FSLR) uses debt. 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 repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we look at debt levels, we first consider both liquidity and debt levels.
How much debt does First Solar have?
You can click on the graph below for the historical figures, but it shows that First Solar had a debt of US $ 280.0 million in June 2021, up from US $ 473.8 million a year earlier. But on the other hand, it also has $ 1.77 billion in cash, which leads to a net cash position of $ 1.49 billion.
NasdaqGS: FSLR History of debt to equity September 29, 2021
How healthy is First Solar’s balance sheet?
The latest balance sheet data shows that First Solar had liabilities of US $ 660.9 million due within one year, and liabilities of US $ 803.9 million due thereafter. In compensation for these obligations, he had cash of US $ 1.77 billion as well as receivables valued at US $ 597.6 million due within 12 months. So he actually has $ 898.2 million Following liquid assets as total liabilities.
This surplus suggests that First Solar has a prudent balance sheet and could likely eliminate its debt without too much difficulty. Put simply, the fact that First Solar has more cash than debt is arguably a good indication that it can safely manage its debt.
On top of that, First Solar has increased its EBIT by 48% over the past twelve months, and this growth will make it easier to process its debt. The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether First Solar 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.
But our last consideration is also important, because a business cannot pay its debts with paper profits; he needs hard cash. First Solar may have net cash on the balance sheet, but it’s always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs and its capacity. . to manage debt. Over the past two years, First Solar has experienced substantial total negative free cash flow. While this may be the result of spending on growth, it makes debt much riskier.
While it’s always a good idea to investigate a company’s debt, in this case First Solar has $ 1.49 billion in net cash and a decent balance sheet. And we liked the appearance of the 48% year-over-year growth in EBIT from last year. So we have no problem with First Solar’s use of debt. The balance sheet is clearly the area you need to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. For example, we have identified 1 warning sign for First Solar that you need to be aware of.
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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