Ichor Holdings (NASDAQ:ICHR) Is Making Moderate Use Of Debt

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.' 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. We can see that Ichor Holdings, Ltd. (NASDAQ:ICHR) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Ichor Holdings's Debt?

The image below, which you can click on for greater detail, shows that Ichor Holdings had debt of US$128.5m at the end of December 2024, a reduction from US$248.7m over a year. On the flip side, it has US$108.7m in cash leading to net debt of about US$19.9m.

How Healthy Is Ichor Holdings' Balance Sheet?

We can see from the most recent balance sheet that Ichor Holdings had liabilities of US$135.7m falling due within a year, and liabilities of US$161.6m due beyond that. On the other hand, it had cash of US$108.7m and US$86.6m worth of receivables due within a year. So it has liabilities totalling US$101.9m more than its cash and near-term receivables, combined.

Of course, Ichor Holdings has a market capitalization of US$931.0m, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Ichor Holdings 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.

Check out our latest analysis for Ichor Holdings

Over 12 months, Ichor Holdings reported revenue of US$849m, which is a gain of 4.4%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Ichor Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$6.7m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$21m into a profit. So we do think this stock is quite risky. For riskier companies like Ichor Holdings 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.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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