GlobalFoundries (NASDAQ:GFS) Has A Pretty Healthy Balance Sheet

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies GlobalFoundries Inc. (NASDAQ:GFS) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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.

What Is GlobalFoundries's Net Debt?

As you can see below, GlobalFoundries had US$1.13b of debt at March 2025, down from US$2.31b a year prior. However, it does have US$2.88b in cash offsetting this, leading to net cash of US$1.75b.

A Look At GlobalFoundries' Liabilities

According to the last reported balance sheet, GlobalFoundries had liabilities of US$2.43b due within 12 months, and liabilities of US$2.95b due beyond 12 months. On the other hand, it had cash of US$2.88b and US$1.40b worth of receivables due within a year. So it has liabilities totalling US$1.10b more than its cash and near-term receivables, combined.

Given GlobalFoundries has a humongous market capitalization of US$22.7b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, GlobalFoundries also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for GlobalFoundries

It is just as well that GlobalFoundries's load is not too heavy, because its EBIT was down 30% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine GlobalFoundries's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. GlobalFoundries 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. In the last three years, GlobalFoundries's free cash flow amounted to 30% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

We could understand if investors are concerned about GlobalFoundries's liabilities, but we can be reassured by the fact it has has net cash of US$1.75b. So we don't have any problem with GlobalFoundries's use of debt. While GlobalFoundries didn't make a statutory profit in the last year, its positive EBIT suggests that profitability might not be far away. Click here to see if its earnings are heading in the right direction, over the medium term.

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.