Himax Technologies (NASDAQ: HIMX) seems to use debt sparingly
Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but the fact that you suffer a permanent loss of capital. “. It is 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 Himax Technologies, Inc. (NASDAQ: HIMX) uses debt in its business. 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. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, debt can be an important tool in businesses, especially capital intensive businesses. 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 Himax Technologies
How much debt does Himax Technologies carry?
You can click on the graph below for historical figures, but it shows Himax Technologies owed US $ 150.5 million in March 2021, up from US $ 231.9 million a year earlier. But on the other hand, it also has $ 245.8 million in cash, which leads to a net cash position of $ 95.3 million.
A look at the responsibilities of Himax Technologies
We can see from the most recent balance sheet that Himax Technologies had liabilities of US $ 387.0 million due within one year and liabilities of US $ 82.1 million due beyond. . In compensation for these obligations, it had cash of US $ 245.8 million as well as receivables valued at US $ 290.4 million maturing within 12 months. So he actually has $ 67.0 million After liquid assets as total liabilities.
This surplus suggests that Himax Technologies has a conservative balance sheet, and could probably eliminate its debt without too much difficulty. Put simply, the fact that Himax Technologies has more cash than debt is arguably a good indication that it can safely manage its debt.
It was also good to see that despite losing money on the EBIT line last year, Himax Technologies has been a game-changer over the past 12 months, delivering EBIT of US $ 138 million. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Himax Technologies can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Finally, while the IRS may love accounting profits, lenders only accept hard cash. Himax Technologies may have net cash on the balance sheet, but it’s always interesting to see how well the business converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its need and capacity. to manage debt. Over the past year, Himax Technologies has actually generated more free cash flow than EBIT. There is nothing better than cash flow to stay in the good graces of your lenders.
While we sympathize with investors who find debt a concern, you should keep in mind that Himax Technologies has net cash of US $ 95.3 million, as well as more liquid assets than cash. passive. And he impressed us with free cash flow of $ 148 million, or 107% of his EBIT. So is Himax Technologies’ debt a risk? It does not seem to us. 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. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for Himax Technologies you should know.
At the end of the day, sometimes it’s easier to focus on businesses that don’t even need to go into debt. Readers can access a list of growth stocks with zero net debt 100% free, at present.
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