Is Advanced Micro Devices ( NASDAQ:AMD ) burdened with debt?

Howard Marks put it nicely when he said that rather than worrying about share price volatility, “the risk I worry about is the possibility of permanent loss… and every practical investor I know worries about it.” So it appears that wise financiers know that debt – which is usually associated with bankruptcies – is a very important factor when assessing a company’s risk. What is important, Advanced Micro Devices, Inc. (NASDAQ:AMD) has debt. The real question, however, is whether this debt makes the company risky.

Why is debt risky?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, the company may go bankrupt if it is unable to repay its creditors. However, a more common (but still painful) scenario is that the company must raise new equity capital at a low price, permanently diluting shareholders. Of course, many companies use debt to finance growth, without any negative consequences. When we think about a company’s use of debt, we first look at cash and debt together.

View our latest analysis for Advanced Micro Devices

What is Advanced Micro Devices’ net debt?

You can click the graphic below to see the historical data, but it shows that Advanced Micro Devices had $2.47 billion in debt as of July 2023, up from $2.78 billion a year earlier. However, it does have US$6.29b in cash, leading to a net total of US$3.82b.

How strong is Advanced Micro Devices’ balance sheet?

Zooming in on the latest balance sheet data, we can see that Advanced Micro Devices had liabilities of US$7.57b due within 12 months and liabilities of US$5.26b due beyond that. On the other hand, it had cash worth US$6.29b and US$4.31b in receivables due within a year. So its liabilities total US$2.23b more than the combination of its cash and near-term receivables.

Given Advanced Micro Devices’ size, it appears that its liquid assets are well balanced with its total liabilities. So it’s highly unlikely that the $171.1 billion company is short of cash, but it’s still worth paying attention to its balance sheet. While Advanced Micro Devices has liabilities worth noting, it also has more cash than debt, so we’re confident it will be able to manage its debt safely. There is no doubt that we learn most about debt from the balance sheet. Ultimately, however, the future profitability of the company will determine whether Advanced Micro Devices can strengthen its balance sheet over time. So if you’re focused on the future, you can check it out free a report showing analyst earnings forecasts.

Over the 12 months, Advanced Micro Devices’ revenues were flat and did not report positive earnings before interest and tax. While it’s not that bad, we would have liked to see an increase.

How risky are advanced micro devices?

Although Advanced Micro Devices lost money on an earnings before interest and tax (EBIT) basis, it actually generated positive free cash flow of $1.9 billion. Taking all this into account and taking into account the net cash position, we don’t think this stock is too risky in the near term. Until we see positive EBIT, we are somewhat cautious about the company’s stock, if only due to its rather moderate revenue growth. The balance sheet is undoubtedly an area to focus on when analyzing debt. However, not all investment risk resides in the balance sheet – quite the contrary. For example – Advanced Micro Devices has 1 warning sign we think you should be aware of this.

If, after all, you’re more interested in a fast-growing company with a solid balance sheet, then check out our list of net cash growth stocks without delay.

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This article by Simply Wall St is of a general nature. We comment based on historical data and analyst forecasts, using only an unbiased methodology, and our articles are not intended to provide 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 long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative content. Simply Wall St has no position in any of the stocks mentioned.