Is SÜSS MicroTec (ETR:SMHN) A Risky Investment?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, SÜSS MicroTec SE (ETR:SMHN) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for SÜSS MicroTec

How Much Debt Does SÜSS MicroTec Carry?

You can click the graphic below for the historical numbers, but it shows that SÜSS MicroTec had €5.64m of debt in September 2024, down from €6.88m, one year before. But on the other hand it also has €136.8m in cash, leading to a €131.2m net cash position.

How Healthy Is SÜSS MicroTec's Balance Sheet?

According to the last reported balance sheet, SÜSS MicroTec had liabilities of €181.0m due within 12 months, and liabilities of €31.3m due beyond 12 months. Offsetting this, it had €136.8m in cash and €44.4m in receivables that were due within 12 months. So its liabilities total €31.1m more than the combination of its cash and short-term receivables.

Of course, SÜSS MicroTec has a market capitalization of €740.7m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, SÜSS MicroTec boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that SÜSS MicroTec has boosted its EBIT by 96%, thus reducing the spectre of future debt repayments. 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 SÜSS MicroTec 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. SÜSS MicroTec 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, SÜSS MicroTec produced sturdy free cash flow equating to 53% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that SÜSS MicroTec has €131.2m in net cash. And we liked the look of last year's 96% year-on-year EBIT growth. So is SÜSS MicroTec's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with SÜSS MicroTec (including 1 which is a bit concerning) .

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.