Is Lattice Semiconductor (NASDAQ: LSCC) Using Too Much Debt?

Howard Marks put it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried. It’s only natural to consider a company’s balance sheet when considering how risky it is, as debt is often involved when a business collapses. Above all, Lattice Semiconductor Corporation (NASDAQ: LSCC) is in debt. But does this debt concern shareholders?

Why Does Debt Bring Risk?

Debt helps a business until the business struggles to repay it, either with new capital or with free cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he has to raise new equity at low cost, thereby constantly diluting shareholders. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

Check out our latest review for Lattice Semiconductor

How much debt does Lattice Semiconductor have?

You can click on the graph below for the historical figures, but it shows that Lattice Semiconductor was in debt of $ 162.2 million in October 2021, down from $ 170.6 million a year earlier. But on the other hand, it also has $ 181.5 million in cash, which leads to a net cash position of $ 19.2 million.

NasdaqGS: LSCC History of debt to equity November 21, 2021

How strong is Lattice Semiconductor’s balance sheet?

The latest balance sheet data shows that Lattice Semiconductor had debts of $ 103.4 million maturing within one year, and debts of $ 208.6 million maturing thereafter. In return, he had $ 181.5 million in cash and $ 84.8 million in receivables due within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by $ 45.7 million.

Considering the size of Lattice Semiconductor, it appears that its liquid assets are well balanced with its total liabilities. So while it’s hard to imagine the US $ 11.5 billion company struggling to find cash, we still think it’s worth watching its balance sheet. While it has some liabilities to note, Lattice Semiconductor also has more cash than debt, so we’re pretty confident it can handle its debt safely.

On top of that, Lattice Semiconductor has increased its EBIT by 62% over the past twelve months, and this growth will make it easier to process its debt. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether Lattice Semiconductor 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. Lattice Semiconductor may have net cash on the balance sheet, but it is always interesting to consider the extent to which the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs and its business. ability to manage debt. Fortunately for all shareholders, Lattice Semiconductor has actually generated more free cash flow than EBIT over the past three years. This kind of solid silver generation warms our hearts like a puppy in a bumblebee costume.

In summary

While it always makes sense to look at a company’s total liabilities, it is very reassuring that Lattice Semiconductor has US $ 19.2 million in net cash. The icing on the cake is that he converted 151% of that EBIT into free cash flow, bringing in US $ 118 million. We therefore do not believe that Lattice Semiconductor’s use of debt is risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. Note that Lattice Semiconductor displays 2 warning signs in our investment analysis , you must know…

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash-net-growing stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St does not have any position in the mentioned stocks.

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