Does FormFactor (NASDAQ:FORM) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 FormFactor, Inc. (NASDAQ:FORM) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 FormFactor's Net Debt?

As you can see below, FormFactor had US$13.0m of debt at March 2025, down from US$14.1m a year prior. But it also has US$299.0m in cash to offset that, meaning it has US$285.9m net cash.

How Healthy Is FormFactor's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that FormFactor had liabilities of US$124.0m due within 12 months and liabilities of US$66.3m due beyond that. Offsetting these obligations, it had cash of US$299.0m as well as receivables valued at US$106.1m due within 12 months. So it actually has US$214.8m more liquid assets than total liabilities.

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

View our latest analysis for FormFactor

Better yet, FormFactor grew its EBIT by 313% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine FormFactor'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. FormFactor 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 last three years, FormFactor actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that FormFactor has net cash of US$285.9m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$64m, being 139% of its EBIT. So is FormFactor's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. 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 FormFactor you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.