Is indie Semiconductor (NASDAQ:INDI) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, indie Semiconductor, Inc. (NASDAQ:INDI) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 indie Semiconductor

What Is indie Semiconductor's Debt?

The image below, which you can click on for greater detail, shows that indie Semiconductor had debt of US$160.8m at the end of December 2023, a reduction from US$171.4m over a year. However, because it has a cash reserve of US$151.7m, its net debt is less, at about US$9.16m.

A Look At indie Semiconductor's Liabilities

The latest balance sheet data shows that indie Semiconductor had liabilities of US$138.9m due within a year, and liabilities of US$203.0m falling due after that. On the other hand, it had cash of US$151.7m and US$72.1m worth of receivables due within a year. So its liabilities total US$118.1m more than the combination of its cash and short-term receivables.

Of course, indie Semiconductor has a market capitalization of US$1.30b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Carrying virtually no net debt, indie Semiconductor has a very light debt load indeed. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if indie Semiconductor 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.

In the last year indie Semiconductor wasn't profitable at an EBIT level, but managed to grow its revenue by 101%, to US$223m. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

While we can certainly appreciate indie Semiconductor's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. To be specific the EBIT loss came in at US$122m. 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. Another cause for caution is that is bled US$117m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for indie Semiconductor that you should be aware of.

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.