Does ASMPT (HKG:522) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 ASMPT Limited (HKG:522) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is ASMPT's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 ASMPT had HK$2.70b of debt, an increase on HK$2.54b, over one year. But it also has HK$5.00b in cash to offset that, meaning it has HK$2.30b net cash.

A Look At ASMPT's Liabilities

Zooming in on the latest balance sheet data, we can see that ASMPT had liabilities of HK$4.74b due within 12 months and liabilities of HK$4.24b due beyond that. On the other hand, it had cash of HK$5.00b and HK$4.76b worth of receivables due within a year. So it actually has HK$782.9m more liquid assets than total liabilities.

This short term liquidity is a sign that ASMPT could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that ASMPT has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for ASMPT

Unfortunately, ASMPT's EBIT flopped 18% over the last four quarters. If earnings continue to decline at that rate then handling the debt will be more difficult than taking three children under 5 to a fancy pants restaurant. 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 ASMPT'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While ASMPT 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. Happily for any shareholders, ASMPT actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that ASMPT has net cash of HK$2.30b, as well as more liquid assets than liabilities. The cherry on top was that in converted 137% of that EBIT to free cash flow, bringing in HK$566m. So we are not troubled with ASMPT's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for ASMPT you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.