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

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies Camtek Ltd. (NASDAQ:CAMT) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. 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?

The chart below, which you can click on for greater detail, shows that Camtek had US$197.9m in debt in December 2024; about the same as the year before. However, its balance sheet shows it holds US$388.0m in cash, so it actually has US$190.1m net cash.

How Strong Is Camtek's Balance Sheet?

The latest balance sheet data shows that Camtek had liabilities of US$123.9m due within a year, and liabilities of US$218.9m falling due after that. Offsetting these obligations, it had cash of US$388.0m as well as receivables valued at US$99.5m due within 12 months. So it can boast US$144.7m more liquid assets than total liabilities.

This surplus suggests that Camtek has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Camtek has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that Camtek has boosted its EBIT by 74%, thus reducing the spectre of future debt repayments. 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 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. While Camtek has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Camtek generated free cash flow amounting to a very robust 88% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Camtek has US$190.1m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$108m, being 88% of its EBIT. So we don't think Camtek's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Camtek 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.