SÜSS MicroTec (ETR:SMHN) Has A Rock Solid Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for SÜSS MicroTec

What Is SÜSS MicroTec's Net Debt?

You can click the graphic below for the historical numbers, but it shows that SÜSS MicroTec had €7.48m of debt in March 2023, down from €8.71m, one year before. But on the other hand it also has €60.4m in cash, leading to a €52.9m net cash position.

A Look At SÜSS MicroTec's Liabilities

Zooming in on the latest balance sheet data, we can see that SÜSS MicroTec had liabilities of €135.8m due within 12 months and liabilities of €32.3m due beyond that. Offsetting these obligations, it had cash of €60.4m as well as receivables valued at €41.3m due within 12 months. So it has liabilities totalling €66.4m more than its cash and near-term receivables, combined.

Given SÜSS MicroTec has a market capitalization of €507.5m, it's hard to believe these liabilities pose much threat. 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!

On top of that, SÜSS MicroTec grew its EBIT by 40% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine SÜSS MicroTec's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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. Over the last three years, SÜSS MicroTec actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While SÜSS MicroTec does have more liabilities than liquid assets, it also has net cash of €52.9m. The cherry on top was that in converted 100% of that EBIT to free cash flow, bringing in €15m. So is SÜSS MicroTec's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of SÜSS MicroTec's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.