Does Lattice Semiconductor (NASDAQ:LSCC) Have A Healthy Balance Sheet?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Lattice Semiconductor Corporation (NASDAQ:LSCC) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Lattice Semiconductor

What Is Lattice Semiconductor's Debt?

The image below, which you can click on for greater detail, shows that Lattice Semiconductor had debt of US$103.8m at the end of April 2023, a reduction from US$153.6m over a year. However, it does have US$112.1m in cash offsetting this, leading to net cash of US$8.32m.

A Look At Lattice Semiconductor's Liabilities

Zooming in on the latest balance sheet data, we can see that Lattice Semiconductor had liabilities of US$97.2m due within 12 months and liabilities of US$155.5m due beyond that. On the other hand, it had cash of US$112.1m and US$97.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$42.7m.

Having regard to Lattice Semiconductor's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$13.2b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Lattice Semiconductor boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Lattice Semiconductor has boosted its EBIT by 76%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Lattice Semiconductor'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, a company can only pay off debt with cold hard cash, not accounting profits. Lattice Semiconductor 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, Lattice Semiconductor actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Lattice Semiconductor has US$8.32m in net cash. And it impressed us with free cash flow of US$202m, being 111% of its EBIT. So is Lattice Semiconductor's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Lattice Semiconductor, you may well want to click here to check an interactive graph of its earnings per share history.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.