We Think Advanced Energy Industries (NASDAQ:AEIS) Can Stay On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Advanced Energy Industries, Inc. (NASDAQ:AEIS) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Advanced Energy Industries Carry?

As you can see below, Advanced Energy Industries had US$565.4m of debt at March 2025, down from US$911.5m a year prior. However, it does have US$723.2m in cash offsetting this, leading to net cash of US$157.8m.

A Look At Advanced Energy Industries' Liabilities

According to the last reported balance sheet, Advanced Energy Industries had liabilities of US$319.2m due within 12 months, and liabilities of US$752.7m due beyond 12 months. On the other hand, it had cash of US$723.2m and US$276.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$72.0m.

This state of affairs indicates that Advanced Energy Industries' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the US$4.98b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Advanced Energy Industries also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Advanced Energy Industries

On the other hand, Advanced Energy Industries saw its EBIT drop by 2.9% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. 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 Advanced Energy Industries 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Advanced Energy Industries 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. During the last three years, Advanced Energy Industries generated free cash flow amounting to a very robust 82% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about Advanced Energy Industries's liabilities, but we can be reassured by the fact it has has net cash of US$157.8m. And it impressed us with free cash flow of US$98m, being 82% of its EBIT. So is Advanced Energy Industries's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Advanced Energy Industries has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.