Is Sivers Semiconductors (STO:SIVE) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Sivers Semiconductors AB (publ) (STO:SIVE) makes use of debt. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for Sivers Semiconductors

What Is Sivers Semiconductors's Net Debt?

The image below, which you can click on for greater detail, shows that Sivers Semiconductors had debt of kr15.0m at the end of December 2021, a reduction from kr19.0m over a year. However, its balance sheet shows it holds kr304.1m in cash, so it actually has kr289.1m net cash.

How Strong Is Sivers Semiconductors' Balance Sheet?

The latest balance sheet data shows that Sivers Semiconductors had liabilities of kr103.5m due within a year, and liabilities of kr49.0m falling due after that. Offsetting these obligations, it had cash of kr304.1m as well as receivables valued at kr36.6m due within 12 months. So it actually has kr188.3m more liquid assets than total liabilities.

This short term liquidity is a sign that Sivers Semiconductors could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Sivers Semiconductors has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Sivers Semiconductors's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Sivers Semiconductors wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to kr154m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Sivers Semiconductors?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Sivers Semiconductors had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through kr175m of cash and made a loss of kr134m. Given it only has net cash of kr289.1m, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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 instance, we've identified 3 warning signs for Sivers Semiconductors (1 shouldn't be ignored) you should be aware of.

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.