Howard Marks put it nicely when he declared that, rather than worrying about share price volatility, ‘The possibility of permanent loss is the risk I worry about… and every practical investor I know worries about.’ So it might be obvious that you required to consider debt, when you consider about how risky any given stock is, becautilize too much debt can sink a company. Importantly, MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) does carry debt. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Generally speaking, debt only becomes a real problem when a company can’t easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business utilizes is to view at its cash and debt toobtainher.
What Is MACOM Technology Solutions Holdings’s Debt?
As you can see below, at the finish of April 2025, MACOM Technology Solutions Holdings had US$508.6m of debt, up from US$456.9m a year ago. Click the image for more detail. But on the other hand it also has US$681.5m in cash, leading to a US$172.9m net cash position.
A Look At MACOM Technology Solutions Holdings’ Liabilities
According to the last reported balance sheet, MACOM Technology Solutions Holdings had liabilities of US$298.8m due within 12 months, and liabilities of US$417.7m due beyond 12 months. Offsetting this, it had US$681.5m in cash and US$131.4m in receivables that were due within 12 months. So it actually has US$96.4m more liquid assets than total liabilities.
Having regard to MACOM Technology Solutions Holdings’ size, it seems that its liquid assets are well balanced with its total liabilities. So it’s very unlikely that the US$10.5b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that MACOM Technology Solutions Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.
Check out our latest analysis for MACOM Technology Solutions Holdings
In addition to that, we’re happy to report that MACOM Technology Solutions Holdings has boosted its EBIT by 38%, thus reducing the spectre of future debt repayments. 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 MACOM Technology Solutions Holdings can strengthen its balance sheet over time. So if you’re focutilized on the future you can check out this free report displaying analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lfinishers only accept cold hard cash. While MACOM Technology Solutions Holdings has net cash on its balance sheet, it’s still worth taking a view at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to support us understand how quickly it is building (or eroding) that cash balance. Over the last three years, MACOM Technology Solutions Holdings actually produced more free cash flow than EBIT. There’s nothing better than incoming cash when it comes to staying in your lfinishers’ good graces.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that MACOM Technology Solutions Holdings has net cash of US$172.9m, as well as more liquid assets than liabilities. The cherry on top was that in converted 143% of that EBIT to free cash flow, bringing in US$191m. So we don’t consider MACOM Technology Solutions Holdings’s utilize of debt is risky. We’d be very excited to see if MACOM Technology Solutions Holdings insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.
Of course, if you’re the type of investor who prefers purchaseing 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 utilizing an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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