Skyworks Solutions (NASDAQ:SWKS) Seems To Use Debt Quite Sensibly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Skyworks Solutions, Inc. (NASDAQ:SWKS) makes use of debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

How Much Debt Does Skyworks Solutions Carry?

As you can see below, Skyworks Solutions had US$995.1m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds US$1.51b in cash, so it actually has US$511.5m net cash.

How Healthy Is Skyworks Solutions' Balance Sheet?

The latest balance sheet data shows that Skyworks Solutions had liabilities of US$613.2m due within a year, and liabilities of US$1.33b falling due after that. On the other hand, it had cash of US$1.51b and US$371.9m worth of receivables due within a year. So its liabilities total US$66.9m more than the combination of its cash and short-term receivables.

Having regard to Skyworks Solutions' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$10.8b company is struggling for cash, we still think it's worth monitoring its 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!

See our latest analysis for Skyworks Solutions

The modesty of its debt load may become crucial for Skyworks Solutions if management cannot prevent a repeat of the 35% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Skyworks Solutions 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While Skyworks Solutions 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 three years, Skyworks Solutions actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

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$511.5m. The cherry on top was that in converted 138% of that EBIT to free cash flow, bringing in US$1.3b. So we are not troubled with Skyworks Solutions's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with Skyworks Solutions .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.