We Think Camtek (NASDAQ:CAMT) Can Manage Its Debt With Ease

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Camtek

What Is Camtek's Debt?

The chart below, which you can click on for greater detail, shows that Camtek had US$196.0m in debt in March 2023; about the same as the year before. However, it does have US$415.7m in cash offsetting this, leading to net cash of US$219.7m.

A Look At Camtek's Liabilities

The latest balance sheet data shows that Camtek had liabilities of US$74.5m due within a year, and liabilities of US$204.4m falling due after that. On the other hand, it had cash of US$415.7m and US$66.3m worth of receivables due within a year. So it can boast US$203.2m 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. Succinctly put, Camtek boasts net cash, so it's fair to say it does not have a heavy debt load!

Camtek's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Camtek'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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. Over the most recent three years, Camtek recorded free cash flow worth 69% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Camtek has US$219.7m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$50m, being 69% of its EBIT. So we don't think Camtek's use of debt is risky. 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.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.