Is Torex Semiconductor (TSE:6616) Using Too Much Debt?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Torex Semiconductor Ltd. (TSE:6616) makes use of debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Torex Semiconductor's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2025 Torex Semiconductor had debt of JP¥12.8b, up from JP¥11.3b in one year. However, it also had JP¥9.43b in cash, and so its net debt is JP¥3.38b.

How Strong Is Torex Semiconductor's Balance Sheet?

We can see from the most recent balance sheet that Torex Semiconductor had liabilities of JP¥7.05b falling due within a year, and liabilities of JP¥9.15b due beyond that. On the other hand, it had cash of JP¥9.43b and JP¥4.08b worth of receivables due within a year. So it has liabilities totalling JP¥2.70b more than its cash and near-term receivables, combined.

Of course, Torex Semiconductor has a market capitalization of JP¥14.3b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Torex Semiconductor's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

View our latest analysis for Torex Semiconductor

In the last year Torex Semiconductor had a loss before interest and tax, and actually shrunk its revenue by 7.0%, to JP¥24b. We would much prefer see growth.

Caveat Emptor

Importantly, Torex Semiconductor had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at JP¥632m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through JP¥557m of cash over the last year. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Torex Semiconductor has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.