Does Amtech Systems (NASDAQ:ASYS) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Amtech Systems, Inc. (NASDAQ:ASYS) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Amtech Systems

What Is Amtech Systems's Debt?

As you can see below, at the end of December 2023, Amtech Systems had US$10.0m of debt, up from none a year ago. Click the image for more detail. However, it does have US$17.0m in cash offsetting this, leading to net cash of US$7.00m.

A Look At Amtech Systems' Liabilities

According to the last reported balance sheet, Amtech Systems had liabilities of US$26.2m due within 12 months, and liabilities of US$19.2m due beyond 12 months. Offsetting these obligations, it had cash of US$17.0m as well as receivables valued at US$22.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$6.32m.

Of course, Amtech Systems has a market capitalization of US$70.2m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Amtech Systems 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 it is future earnings, more than anything, that will determine Amtech Systems's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Amtech Systems wasn't profitable at an EBIT level, but managed to grow its revenue by 15%, to US$117m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Amtech Systems?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Amtech Systems had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of US$3.7m and booked a US$19m accounting loss. Given it only has net cash of US$7.00m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Amtech Systems that you should be aware of before investing here.

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.