Does QuickLogic (NASDAQ:QUIK) Have A 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.' 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 QuickLogic Corporation (NASDAQ:QUIK) does use debt in its business. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

See our latest analysis for QuickLogic

What Is QuickLogic's Debt?

As you can see below, QuickLogic had US$15.0m of debt, at January 2023, which is about the same as the year before. You can click the chart for greater detail. But it also has US$19.2m in cash to offset that, meaning it has US$4.20m net cash.

How Strong Is QuickLogic's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that QuickLogic had liabilities of US$20.0m due within 12 months and liabilities of US$669.0k due beyond that. Offsetting these obligations, it had cash of US$19.2m as well as receivables valued at US$4.68m due within 12 months. So it can boast US$3.19m more liquid assets than total liabilities.

This short term liquidity is a sign that QuickLogic could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that QuickLogic has more cash than debt is arguably a good indication that it can manage its debt safely. 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 QuickLogic 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.

Over 12 months, QuickLogic reported revenue of US$16m, which is a gain of 28%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is QuickLogic?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that QuickLogic had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of US$4.0m and booked a US$4.3m accounting loss. However, it has net cash of US$4.20m, so it has a bit of time before it will need more capital. With very solid revenue growth in the last year, QuickLogic may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Case in point: We've spotted 3 warning signs for QuickLogic you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.