Does Camtek (NASDAQ:CAMT) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Camtek Ltd. (NASDAQ:CAMT) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Camtek

How Much Debt Does Camtek Carry?

As you can see below, Camtek had US$196.3m of debt, at June 2023, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$431.3m in cash, so it actually has US$235.0m net cash.

A Look At Camtek's Liabilities

We can see from the most recent balance sheet that Camtek had liabilities of US$76.8m falling due within a year, and liabilities of US$206.5m due beyond that. Offsetting this, it had US$431.3m in cash and US$79.0m in receivables that were due within 12 months. So it can boast US$227.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Camtek could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Camtek has more cash than debt is arguably a good indication that it can manage its debt safely.

On the other hand, Camtek's EBIT dived 12%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Camtek can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Camtek 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, Camtek produced sturdy free cash flow equating to 65% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Camtek has net cash of US$235.0m, as well as more liquid assets than liabilities. So we don't have any problem with Camtek's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in Camtek, you may well want to click here to check an interactive graph of its earnings per share history.

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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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.