We Think BE Semiconductor Industries (AMS:BESI) Can Stay On Top Of Its Debt

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.' 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. We can see that BE Semiconductor Industries N.V. (AMS:BESI) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for BE Semiconductor Industries

What Is BE Semiconductor Industries's Debt?

You can click the graphic below for the historical numbers, but it shows that BE Semiconductor Industries had €266.1m of debt in March 2024, down from €319.2m, one year before. But it also has €447.1m in cash to offset that, meaning it has €180.9m net cash.

How Healthy Is BE Semiconductor Industries' Balance Sheet?

According to the last reported balance sheet, BE Semiconductor Industries had liabilities of €154.0m due within 12 months, and liabilities of €303.8m due beyond 12 months. Offsetting these obligations, it had cash of €447.1m as well as receivables valued at €150.2m due within 12 months. So it actually has €139.5m more liquid assets than total liabilities.

This state of affairs indicates that BE Semiconductor Industries' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €12.0b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, BE Semiconductor Industries boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that BE Semiconductor Industries has seen its EBIT plunge 16% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if BE Semiconductor Industries 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. 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 86% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case BE Semiconductor Industries has €180.9m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of €176m, being 86% 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. To that end, you should be aware of the 1 warning sign we've spotted with BE Semiconductor Industries .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com