Is SemiLEDs (NASDAQ:LEDS) Using Debt Sensibly?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 note that SemiLEDs Corporation (NASDAQ:LEDS) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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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. 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 SemiLEDs's Net Debt?

The image below, which you can click on for greater detail, shows that SemiLEDs had debt of US$1.85m at the end of May 2025, a reduction from US$3.82m over a year. But it also has US$2.44m in cash to offset that, meaning it has US$590.0k net cash.

How Strong Is SemiLEDs' Balance Sheet?

We can see from the most recent balance sheet that SemiLEDs had liabilities of US$17.6m falling due within a year, and liabilities of US$1.62m due beyond that. Offsetting this, it had US$2.44m in cash and US$164.0k in receivables that were due within 12 months. So its liabilities total US$16.6m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of US$21.0m, so it does suggest shareholders should keep an eye on SemiLEDs' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, SemiLEDs boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since SemiLEDs will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

View our latest analysis for SemiLEDs

Over 12 months, SemiLEDs reported revenue of US$31m, which is a gain of 486%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is SemiLEDs?

While SemiLEDs lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow US$1.5m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. The good news for SemiLEDs shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But we still think it's somewhat risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for SemiLEDs (1 is a bit unpleasant!) that you should be aware of before investing here.

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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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.