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David Iben put it well when he said, “Volatility is not a risk we care about. What we care about is avoiding permanent loss of capital.” So it may be obvious that you need to consider debt when thinking about how risky a particular stock is, because too much debt can ruin a company. We can see that Amtech Systems, Inc. (NASDAQ:ASYS) does indeed use debt in its business. But should shareholders be concerned about its use of debt?

Why is debt risky?

Debt is a means of helping businesses grow, but if a company is unable to repay its lenders, it is at their mercy. In a worst-case scenario, a company can go bankrupt if it cannot pay its creditors. While it doesn’t happen too often, we often see indebted companies permanently dilute their shareholder base because lenders force them to raise capital at a fire-sale price. The advantage of debt, of course, is that it often represents cheap capital, especially when it replaces a company’s dilution with the ability to reinvest at a high rate of return. When we think about a company’s use of debt, we first look at cash and debt together.

Check out our latest analysis for Amtech Systems

How much debt does Amtech Systems have?

The image below, which you can click on for more details, shows that Amtech Systems had $4.20 million in debt at the end of March 2024, a reduction of $11.6 million from one year ago. However, the company also has $13.0 million in cash to offset this, meaning it has $8.80 million in net cash.

How healthy is Amtech Systems’ balance sheet?

From the latest balance sheet data, Amtech Systems had liabilities of $25.9 million due within a year and accounts receivable of $9.67 million due after that. On the other hand, the company had cash of $13.0 million and accounts receivable of $21.7 million due within a year. Thus, its liabilities total $896 thousand more than the combination of its cash and short-term receivables.

Considering Amtech Systems’ size, its cash seems to be well-balanced with total liabilities, so it’s very unlikely that the US$86.8m company is short of cash, but it’s still worth keeping an eye on the balance sheet. Despite its sizeable liabilities, Amtech Systems does have net cash flow, so it’s fair to say the company doesn’t have a heavy debt load! The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will determine whether Amtech Systems can strengthen its balance sheet over time, so if you want to know what the professionals think, you might find this free report on analyst earnings forecasts interesting.

Amtech Systems has managed to keep its revenue fairly stable over the last 12 months and has not been able to report positive earnings before interest and taxes. That’s not exactly impressive, but not too bad either.

How risky is Amtech Systems?

We have no doubt that loss-making companies are generally riskier than profitable ones. And the fact is that Amtech Systems lost money on earnings before interest and tax (EBIT) over the last twelve months. In fact, the company burned through US$965k in cash during that time, making a loss of US$21m. With just US$8.80m on the balance sheet, it looks like the company will need to raise capital again soon. Overall, we’d say the stock is a little risky, and we’re usually very cautious until we see positive free cash flow. When analyzing debt levels, the balance sheet is the obvious place to start. But ultimately, any company can have risks that exist off the balance sheet. We have identified 2 warning signs with Amtech Systems, and understanding them should be part of your investment process.

Of course, if you’re one of those investors who prefers to buy stocks without the burden of debt, you should discover our exclusive list of net cash growth stocks today.

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This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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