Would Lumentum Holdings (NASDAQ:LITE) Be Better Off With Less 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. We note that Lumentum Holdings Inc. (NASDAQ:LITE) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Our free stock report includes 2 warning signs investors should be aware of before investing in Lumentum Holdings. Read for free now.

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

How Much Debt Does Lumentum Holdings Carry?

The chart below, which you can click on for greater detail, shows that Lumentum Holdings had US$2.57b in debt in March 2025; about the same as the year before. On the flip side, it has US$866.7m in cash leading to net debt of about US$1.71b.

A Look At Lumentum Holdings' Liabilities

The latest balance sheet data shows that Lumentum Holdings had liabilities of US$353.0m due within a year, and liabilities of US$2.74b falling due after that. Offsetting these obligations, it had cash of US$866.7m as well as receivables valued at US$260.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.97b.

While this might seem like a lot, it is not so bad since Lumentum Holdings has a market capitalization of US$5.43b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Lumentum Holdings 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.

Check out our latest analysis for Lumentum Holdings

In the last year Lumentum Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 3.6%, to US$1.5b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Lumentum Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$286m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled US$104m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Lumentum Holdings has 2 warning signs (and 1 which is significant) we think 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.