Warren Buffett said: “Volatility is far from synonymous with risk”. It’s only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We can see that BE Semiconductor Industries SA (AMS: BESI) uses debt in its activities. But the real question is whether this debt makes the business risky.
When is debt dangerous?
Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. If things really go wrong, lenders can take over the business. While it’s not too common, we often see indebted companies continually diluting their shareholders because lenders are forcing them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth without negative consequences. When we look at debt levels, we first consider both liquidity and debt levels.
Check out our latest review for BE Semiconductor Industries
What is the debt of BE Semiconductor Industries?
You can click on the graph below for historical figures, but it shows that as of March 2021, BE Semiconductor Industries had 386.6 million euros in debt, an increase from 279.3 million euros. , over one year. But on the other hand, it also has 605.8 million euros in cash, leading to a net cash position of 219.2 million euros.
A look at the responsibilities of BE Semiconductor Industries
Zooming in on the latest balance sheet data, we can see that BE Semiconductor Industries had a liability of 148.5 million euros due within 12 months and a liability of 427.8 million euros due beyond. In return, he had € 605.8 million in cash and € 147.7 million in receivables due within 12 months. So he actually has 177.3 million euros After liquid assets as total liabilities.
This short-term liquidity is a sign that BE Semiconductor Industries could probably repay its debt easily, as its balance sheet is far from tight. Put simply, the fact that BE Semiconductor Industries has more cash than debt is probably a good indication that it can manage its debt safely.
On top of that, we are happy to report that BE Semiconductor Industries has increased its EBIT by 86%, reducing the specter of future debt repayments. The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether BE Semiconductor Industries can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.
But our last consideration is also important, because a company cannot pay its debts with paper profits; he needs hard cash. BE Semiconductor Industries may have net cash on the balance sheet, but it’s always interesting to see the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and its ability to manage debt. Over the past three years, BE Semiconductor Industries has recorded free cash flow totaling 91% of its EBIT, which is higher than what we normally expect. This positions it well to pay off debt if it is desirable.
While it still makes sense to investigate a company’s debt, then BE Semiconductor Industries has € 219.2 million in net cash and a decent balance sheet. The icing on the cake is that he converted 91% of that EBIT into free cash flow, bringing in 137 million euros. We therefore do not believe that the use of debt by BE Semiconductor Industries is risky. The balance sheet is clearly the area you need to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist off the balance sheet. To do this, you need to know the 3 warning signs we spotted with BE Semiconductor Industries.
If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.
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