Alpha and Omega Semiconductor (NASDAQ:AOSL) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Alpha and Omega Semiconductor Carry?

The image below, which you can click on for greater detail, shows that Alpha and Omega Semiconductor had debt of US$29.7m at the end of March 2025, a reduction from US$41.2m over a year. However, its balance sheet shows it holds US$169.9m in cash, so it actually has US$140.2m net cash.

How Strong Is Alpha and Omega Semiconductor's Balance Sheet?

According to the last reported balance sheet, Alpha and Omega Semiconductor had liabilities of US$155.4m due within 12 months, and liabilities of US$74.7m due beyond 12 months. Offsetting this, it had US$169.9m in cash and US$30.0m in receivables that were due within 12 months. So its liabilities total US$30.2m more than the combination of its cash and short-term receivables.

Since publicly traded Alpha and Omega Semiconductor shares are worth a total of US$803.8m, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Alpha and Omega Semiconductor boasts net cash, so it's fair to say it does not have a heavy 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 Alpha and Omega 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.

See our latest analysis for Alpha and Omega Semiconductor

In the last year Alpha and Omega Semiconductor wasn't profitable at an EBIT level, but managed to grow its revenue by 3.6%, to US$681m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Alpha and Omega Semiconductor?

While Alpha and Omega Semiconductor lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$9.4m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. For riskier companies like Alpha and Omega Semiconductor I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.