These 4 Measures Indicate That Foxsemicon Integrated Technology (TWSE:3413) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Foxsemicon Integrated Technology Inc. (TWSE:3413) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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.

View our latest analysis for Foxsemicon Integrated Technology

How Much Debt Does Foxsemicon Integrated Technology Carry?

The image below, which you can click on for greater detail, shows that Foxsemicon Integrated Technology had debt of NT$2.37b at the end of September 2024, a reduction from NT$3.54b over a year. However, it does have NT$9.61b in cash offsetting this, leading to net cash of NT$7.24b.

How Healthy Is Foxsemicon Integrated Technology's Balance Sheet?

According to the last reported balance sheet, Foxsemicon Integrated Technology had liabilities of NT$4.62b due within 12 months, and liabilities of NT$2.71b due beyond 12 months. On the other hand, it had cash of NT$9.61b and NT$1.74b worth of receivables due within a year. So it can boast NT$4.02b more liquid assets than total liabilities.

This surplus suggests that Foxsemicon Integrated Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Foxsemicon Integrated Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Foxsemicon Integrated Technology has increased its EBIT by 3.5% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Foxsemicon Integrated Technology'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Foxsemicon Integrated Technology 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. In the last three years, Foxsemicon Integrated Technology's free cash flow amounted to 35% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Foxsemicon Integrated Technology has net cash of NT$7.24b, as well as more liquid assets than liabilities. And it also grew its EBIT by 3.5% over the last year. So we don't have any problem with Foxsemicon Integrated Technology's use of debt. 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 2 warning signs for Foxsemicon Integrated Technology (1 is a bit concerning) you should be aware of.

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.