Does Alpha and Omega Semiconductor (NASDAQ:AOSL) Have A Healthy Balance Sheet?

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. We can see that Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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. 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?

As you can see below, Alpha and Omega Semiconductor had US$5.80m of debt at September 2025, down from US$35.5m a year prior. But on the other hand it also has US$224.5m in cash, leading to a US$218.7m net cash position.

A Look At Alpha and Omega Semiconductor's Liabilities

We can see from the most recent balance sheet that Alpha and Omega Semiconductor had liabilities of US$161.3m falling due within a year, and liabilities of US$42.1m due beyond that. Offsetting these obligations, it had cash of US$224.5m as well as receivables valued at US$95.8m due within 12 months. So it can boast US$116.9m more liquid assets than total liabilities.

This surplus suggests that Alpha and Omega Semiconductor is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Alpha and Omega Semiconductor has more cash than debt is arguably a good indication that it can manage its debt safely. 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.

View our latest analysis for Alpha and Omega Semiconductor

Over 12 months, Alpha and Omega Semiconductor reported revenue of US$697m, which is a gain of 5.8%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Alpha and Omega Semiconductor?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Alpha and Omega Semiconductor had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$12m and booked a US$97m accounting loss. But the saving grace is the US$218.7m on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that Alpha and Omega Semiconductor is showing 1 warning sign in our investment analysis , you should know about...

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.