Lattice Semiconductor (NASDAQ:LSCC) Has A Pretty Healthy Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Lattice Semiconductor Corporation (NASDAQ:LSCC) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Lattice Semiconductor

What Is Lattice Semiconductor's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Lattice Semiconductor had US$10.8m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$124.3m in cash, so it actually has US$113.4m net cash.

How Strong Is Lattice Semiconductor's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Lattice Semiconductor had liabilities of US$92.0m due within 12 months and liabilities of US$58.1m due beyond that. Offsetting this, it had US$124.3m in cash and US$107.2m in receivables that were due within 12 months. So it can boast US$81.4m more liquid assets than total liabilities.

Having regard to Lattice Semiconductor's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$7.15b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Lattice Semiconductor boasts net cash, so it's fair to say it does not have a heavy debt load!

It is just as well that Lattice Semiconductor's load is not too heavy, because its EBIT was down 55% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Lattice Semiconductor can strengthen its balance sheet over time. 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. While Lattice Semiconductor has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Lattice Semiconductor actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Lattice Semiconductor has US$113.4m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$132m, being 112% of its EBIT. So we are not troubled with Lattice Semiconductor's debt use. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that Lattice Semiconductor insiders have been buying shares: if you're on the same wavelength, you can find out if insiders are buying by clicking this link.

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.