Keysight Technologies (NYSE:KEYS) Has A Pretty Healthy Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 note that Keysight Technologies, Inc. (NYSE:KEYS) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Keysight Technologies's Debt?

As you can see below, at the end of April 2025, Keysight Technologies had US$2.53b of debt, up from US$1.80b a year ago. Click the image for more detail. However, it does have US$3.12b in cash offsetting this, leading to net cash of US$586.0m.

How Strong Is Keysight Technologies' Balance Sheet?

We can see from the most recent balance sheet that Keysight Technologies had liabilities of US$1.61b falling due within a year, and liabilities of US$3.44b due beyond that. Offsetting these obligations, it had cash of US$3.12b as well as receivables valued at US$856.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.08b.

Since publicly traded Keysight Technologies shares are worth a very impressive total of US$28.3b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Keysight Technologies also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Keysight Technologies

It is just as well that Keysight Technologies's load is not too heavy, because its EBIT was down 25% 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 ultimately the future profitability of the business will decide if Keysight Technologies 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Keysight Technologies 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, Keysight Technologies recorded free cash flow worth a fulsome 98% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about Keysight Technologies's liabilities, but we can be reassured by the fact it has has net cash of US$586.0m. And it impressed us with free cash flow of US$1.3b, being 98% of its EBIT. So we don't have any problem with Keysight Technologies's use of debt. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Keysight Technologies you should know about.

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.