These 4 Measures Indicate That BE Semiconductor Industries (AMS:BESI) Is Using Debt Reasonably Well

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies BE Semiconductor Industries N.V. (AMS:BESI) makes use of debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

See our latest analysis for BE Semiconductor Industries

What Is BE Semiconductor Industries's Net Debt?

The image below, which you can click on for greater detail, shows that BE Semiconductor Industries had debt of €301.0m at the end of September 2023, a reduction from €319.3m over a year. But it also has €391.2m in cash to offset that, meaning it has €90.2m net cash.

A Look At BE Semiconductor Industries' Liabilities

The latest balance sheet data shows that BE Semiconductor Industries had liabilities of €135.0m due within a year, and liabilities of €341.0m falling due after that. Offsetting these obligations, it had cash of €391.2m as well as receivables valued at €127.0m due within 12 months. So it can boast €42.2m more liquid assets than total liabilities.

Having regard to BE Semiconductor Industries' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €10.5b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, BE Semiconductor Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

It is just as well that BE Semiconductor Industries's load is not too heavy, because its EBIT was down 37% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. 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 BE Semiconductor Industries 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. BE Semiconductor Industries 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, BE Semiconductor Industries recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case BE Semiconductor Industries has €90.2m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of €213m, being 84% of its EBIT. So we are not troubled with BE Semiconductor Industries's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that BE Semiconductor Industries is showing 1 warning sign in our investment analysis , 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.