These 4 Measures Indicate That Amtech Systems (NASDAQ:ASYS) Is Using Debt Extensively

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.' 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 the real question is whether this debt is making the company risky.

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Amtech Systems

What Is Amtech Systems's Net Debt?

As you can see below, Amtech Systems had US$4.99m of debt at March 2021, down from US$5.36m a year prior. But on the other hand it also has US$40.4m in cash, leading to a US$35.4m net cash position.

How Strong Is Amtech Systems' Balance Sheet?

The latest balance sheet data shows that Amtech Systems had liabilities of US$10.6m due within a year, and liabilities of US$13.9m falling due after that. On the other hand, it had cash of US$40.4m and US$18.0m worth of receivables due within a year. So it can boast US$33.9m more liquid assets than total liabilities.

This surplus suggests that Amtech Systems is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Amtech Systems has more cash than debt is arguably a good indication that it can manage its debt safely.

Shareholders should be aware that Amtech Systems's EBIT was down 92% last year. If that earnings trend continues then paying off its debt will be about as easy as herding cats on to a roller coaster. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Amtech Systems 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, Amtech Systems burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing up

While it is always sensible to investigate a company's debt, in this case Amtech Systems has US$35.4m in net cash and a decent-looking balance sheet. So although we see some areas for improvement, we're not too worried about Amtech Systems's balance sheet. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Amtech Systems you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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