QuickLogic (NASDAQ:QUIK) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 the more important question is: how much risk is that debt creating?

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. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for QuickLogic

How Much Debt Does QuickLogic Carry?

As you can see below, QuickLogic had US$15.0m of debt, at April 2022, which is about the same as the year before. You can click the chart for greater detail. But it also has US$20.1m in cash to offset that, meaning it has US$5.14m net cash.

A Look At QuickLogic's Liabilities

According to the last reported balance sheet, QuickLogic had liabilities of US$19.1m due within 12 months, and liabilities of US$740.0k due beyond 12 months. Offsetting this, it had US$20.1m in cash and US$1.58m in receivables that were due within 12 months. So it actually has US$1.86m more liquid assets than total liabilities.

This surplus suggests that QuickLogic has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that QuickLogic has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. 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.

In the last year QuickLogic wasn't profitable at an EBIT level, but managed to grow its revenue by 67%, to US$15m. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is QuickLogic?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year QuickLogic had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$3.1m of cash and made a loss of US$6.1m. However, it has net cash of US$5.14m, so it has a bit of time before it will need more capital. QuickLogic's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 4 warning signs we've spotted with QuickLogic .

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.