Is Enovix (NASDAQ:ENVX) Using Too Much Debt?

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.' 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 Enovix Corporation (NASDAQ:ENVX) makes use of debt. But is this debt a concern to shareholders?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Enovix

How Much Debt Does Enovix Carry?

As you can see below, at the end of March 2024, Enovix had US$176.8m of debt, up from none a year ago. Click the image for more detail. But it also has US$262.4m in cash to offset that, meaning it has US$85.6m net cash.

How Healthy Is Enovix's Balance Sheet?

The latest balance sheet data shows that Enovix had liabilities of US$56.9m due within a year, and liabilities of US$219.9m falling due after that. Offsetting these obligations, it had cash of US$262.4m as well as receivables valued at US$1.87m due within 12 months. So its liabilities total US$12.5m more than the combination of its cash and short-term receivables.

This state of affairs indicates that Enovix's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$2.07b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Enovix also has more cash than debt, so we're pretty confident 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 Enovix'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.

In the last year Enovix wasn't profitable at an EBIT level, but managed to grow its revenue by 107%, to US$13m. So there's no doubt that shareholders are cheering for growth

So How Risky Is Enovix?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Enovix had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$188m of cash and made a loss of US$187m. But at least it has US$85.6m on the balance sheet to spend on growth, near-term. The good news for shareholders is that Enovix has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Enovix (of which 1 is a bit concerning!) you should know about.

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.

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

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