Is QuickLogic (NASDAQ:QUIK) Weighed On By Its Debt Load?

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.' 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. We can see that QuickLogic Corporation (NASDAQ:QUIK) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for QuickLogic

What Is QuickLogic's Debt?

The chart below, which you can click on for greater detail, shows that QuickLogic had US$15.0m in debt in October 2023; about the same as the year before. However, it does have US$18.6m in cash offsetting this, leading to net cash of US$3.63m.

How Healthy Is QuickLogic's Balance Sheet?

The latest balance sheet data shows that QuickLogic had liabilities of US$22.1m due within a year, and liabilities of US$457.0k falling due after that. Offsetting this, it had US$18.6m in cash and US$5.68m in receivables that were due within 12 months. So it actually has US$1.80m more liquid assets than total liabilities.

This state of affairs indicates that QuickLogic's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$147.4m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, QuickLogic boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine QuickLogic's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, QuickLogic reported revenue of US$18m, which is a gain of 13%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is QuickLogic?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months QuickLogic lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through US$3.2m of cash and made a loss of US$3.5m. However, it has net cash of US$3.63m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign 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.