Here's Why STMicroelectronics (EPA:STMPA) Can Manage Its Debt Responsibly

Warren Buffett famously said, '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. As with many other companies STMicroelectronics N.V. (EPA:STMPA) makes use of debt. But should shareholders be worried about its use of debt?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does STMicroelectronics Carry?

The image below, which you can click on for greater detail, shows that STMicroelectronics had debt of US$2.82b at the end of March 2025, a reduction from US$3.05b over a year. But it also has US$5.96b in cash to offset that, meaning it has US$3.14b net cash.

How Strong Is STMicroelectronics' Balance Sheet?

The latest balance sheet data shows that STMicroelectronics had liabilities of US$3.74b due within a year, and liabilities of US$3.23b falling due after that. On the other hand, it had cash of US$5.96b and US$2.11b worth of receivables due within a year. So it can boast US$1.11b more liquid assets than total liabilities.

This short term liquidity is a sign that STMicroelectronics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, STMicroelectronics boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for STMicroelectronics

The modesty of its debt load may become crucial for STMicroelectronics if management cannot prevent a repeat of the 72% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if STMicroelectronics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While STMicroelectronics has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, STMicroelectronics's free cash flow amounted to 27% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case STMicroelectronics has US$3.14b in net cash and a decent-looking balance sheet. So we are not troubled with STMicroelectronics's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with STMicroelectronics .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.