Is Amkor Technology (NASDAQ:AMKR) A Risky Investment?

Warren Buffett famously said, '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. We can see that Amkor Technology, Inc. (NASDAQ:AMKR) does use debt in its business. But should shareholders be worried about its use of debt?

We've discovered 1 warning sign about Amkor Technology. View them for free.

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Amkor Technology's Debt?

The chart below, which you can click on for greater detail, shows that Amkor Technology had US$1.16b in debt in December 2024; about the same as the year before. But it also has US$1.65b in cash to offset that, meaning it has US$487.1m net cash.

How Strong Is Amkor Technology's Balance Sheet?

According to the last reported balance sheet, Amkor Technology had liabilities of US$1.46b due within 12 months, and liabilities of US$1.31b due beyond 12 months. Offsetting these obligations, it had cash of US$1.65b as well as receivables valued at US$1.06b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$59.6m.

This state of affairs indicates that Amkor Technology's 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 US$4.30b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Amkor Technology also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Amkor Technology

On the other hand, Amkor Technology saw its EBIT drop by 6.5% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. 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 Amkor Technology 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. Amkor Technology 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. During the last three years, Amkor Technology produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Amkor Technology has US$487.1m in net cash. So we are not troubled with Amkor Technology's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Amkor Technology that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.