Skyworks Solutions (NASDAQ:SWKS) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 note that Skyworks Solutions, Inc. (NASDAQ:SWKS) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Skyworks Solutions

How Much Debt Does Skyworks Solutions Carry?

You can click the graphic below for the historical numbers, but it shows that Skyworks Solutions had US$994.0m of debt in June 2024, down from US$1.49b, one year before. But it also has US$1.27b in cash to offset that, meaning it has US$275.0m net cash.

How Strong Is Skyworks Solutions' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Skyworks Solutions had liabilities of US$562.9m due within 12 months and liabilities of US$1.34b due beyond that. Offsetting this, it had US$1.27b in cash and US$607.4m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to Skyworks Solutions' size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$15.2b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Skyworks Solutions boasts net cash, so it's fair to say it does not have a heavy debt load!

It is just as well that Skyworks Solutions's load is not too heavy, because its EBIT was down 35% over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Skyworks Solutions's ability to maintain a healthy balance sheet going forward. 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. Skyworks Solutions may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Skyworks Solutions actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Skyworks Solutions's liabilities, but we can be reassured by the fact it has has net cash of US$275.0m. And it impressed us with free cash flow of US$1.5b, being 106% of its EBIT. So we don't have any problem with Skyworks Solutions's use of debt. Of course, we wouldn't say no to the extra confidence that we'd gain if we knew that Skyworks Solutions 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 you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.