We Think Raydium Semiconductor (TWSE:3592) Can Manage Its Debt With Ease

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Raydium Semiconductor Corporation (TWSE:3592) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Raydium Semiconductor's Net Debt?

The image below, which you can click on for greater detail, shows that Raydium Semiconductor had debt of NT$130.9m at the end of December 2024, a reduction from NT$589.3m over a year. But it also has NT$9.86b in cash to offset that, meaning it has NT$9.73b net cash.

A Look At Raydium Semiconductor's Liabilities

We can see from the most recent balance sheet that Raydium Semiconductor had liabilities of NT$7.60b falling due within a year, and liabilities of NT$733.1m due beyond that. Offsetting this, it had NT$9.86b in cash and NT$5.75b in receivables that were due within 12 months. So it actually has NT$7.28b more liquid assets than total liabilities.

This surplus suggests that Raydium Semiconductor is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Raydium Semiconductor has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Raydium Semiconductor

In addition to that, we're happy to report that Raydium Semiconductor has boosted its EBIT by 54%, thus reducing the spectre of future debt repayments. 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 Raydium Semiconductor 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Raydium Semiconductor 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. Happily for any shareholders, Raydium Semiconductor actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Raydium Semiconductor has net cash of NT$9.73b, as well as more liquid assets than liabilities. The cherry on top was that in converted 103% of that EBIT to free cash flow, bringing in NT$2.5b. When it comes to Raydium Semiconductor's debt, we sufficiently relaxed that our mind turns to the jacuzzi. 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 Raydium Semiconductor .

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.