Is Cohu (NASDAQ:COHU) Weighed On By Its Debt Load?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Cohu, Inc. (NASDAQ:COHU) does use debt in its business. But should shareholders be worried about its use of debt?

We check all companies for important risks. See what we found for Cohu in our free report.

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Cohu's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Cohu had US$17.7m of debt, an increase on US$10.8m, over one year. But it also has US$200.8m in cash to offset that, meaning it has US$183.1m net cash.

How Healthy Is Cohu's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Cohu had liabilities of US$92.0m due within 12 months and liabilities of US$55.8m due beyond that. Offsetting these obligations, it had cash of US$200.8m as well as receivables valued at US$93.6m due within 12 months. So it actually has US$146.6m more liquid assets than total liabilities.

This excess liquidity suggests that Cohu is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Cohu has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Cohu 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.

View our latest analysis for Cohu

Over 12 months, Cohu made a loss at the EBIT level, and saw its revenue drop to US$391m, which is a fall of 31%. To be frank that doesn't bode well.

So How Risky Is Cohu?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Cohu lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$12m and booked a US$86m accounting loss. But the saving grace is the US$183.1m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. For riskier companies like Cohu I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.