Is Synaptics (NASDAQ:SYNA) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Synaptics Incorporated (NASDAQ:SYNA) 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 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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Synaptics

How Much Debt Does Synaptics Carry?

As you can see below, Synaptics had US$973.7m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$828.6m in cash offsetting this, leading to net debt of about US$145.1m.

A Look At Synaptics' Liabilities

Zooming in on the latest balance sheet data, we can see that Synaptics had liabilities of US$210.9m due within 12 months and liabilities of US$1.09b due beyond that. On the other hand, it had cash of US$828.6m and US$145.9m worth of receivables due within a year. So its liabilities total US$329.8m more than the combination of its cash and short-term receivables.

Since publicly traded Synaptics shares are worth a total of US$3.51b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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 Synaptics can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Synaptics had a loss before interest and tax, and actually shrunk its revenue by 41%, to US$939m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Synaptics's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at US$99m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$106m into a profit. So to be blunt we do think it is risky. For riskier companies like Synaptics I always like to keep an eye on whether insiders are buying or selling. So click here if you want to find out for yourself.

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.

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