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 can see that Skyworks Solutions, Inc. (NASDAQ:SWKS) does use debt in its business. 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. 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, 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.

See our latest analysis for Skyworks Solutions

What Is Skyworks Solutions's Net Debt?

As you can see below, Skyworks Solutions had US$994.7m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has US$1.74b in cash to offset that, meaning it has US$744.5m net cash.

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A Look At Skyworks Solutions' Liabilities

The latest balance sheet data shows that Skyworks Solutions had liabilities of US$579.6m due within a year, and liabilities of US$1.35b falling due after that. On the other hand, it had cash of US$1.74b and US$520.0m worth of receivables due within a year. So it can boast US$328.8m more liquid assets than total liabilities.

This surplus suggests that Skyworks Solutions has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Skyworks Solutions has more cash than debt is arguably a good indication that it can manage its debt safely.

It is just as well that Skyworks Solutions's load is not too heavy, because its EBIT was down 35% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. 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. Over the last three years, Skyworks Solutions actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Skyworks Solutions has net cash of US$744.5m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of US$1.2b, being 124% of its EBIT. So we are not troubled with Skyworks Solutions's debt use. 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 1 warning sign for Skyworks Solutions you should know about.

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.