QuickLogic (NASDAQ:QUIK) Seems To Use Debt Quite Sensibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that QuickLogic Corporation (NASDAQ:QUIK) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for QuickLogic

What Is QuickLogic's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 QuickLogic had debt of US$21.2m, up from US$15.0m in one year. But on the other hand it also has US$23.2m in cash, leading to a US$2.00m net cash position.

A Look At QuickLogic's Liabilities

The latest balance sheet data shows that QuickLogic had liabilities of US$24.6m due within a year, and liabilities of US$1.01m falling due after that. Offsetting this, it had US$23.2m in cash and US$3.18m in receivables that were due within 12 months. So it can boast US$702.0k more liquid assets than total liabilities.

Having regard to QuickLogic'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$109.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, QuickLogic boasts net cash, so it's fair to say it does not have a heavy debt load!

Although QuickLogic made a loss at the EBIT level, last year, it was also good to see that it generated US$2.1m in EBIT over the last twelve months. 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 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While QuickLogic 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. Over the last year, QuickLogic saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that QuickLogic has net cash of US$2.00m, as well as more liquid assets than liabilities. So we don't have any problem with QuickLogic's use of debt. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for QuickLogic (of which 1 is potentially serious!) you should know about.

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.