Elmos Semiconductor (ETR:ELG) Has A Pretty Healthy Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Elmos Semiconductor SE (ETR:ELG) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Elmos Semiconductor's Net Debt?

The chart below, which you can click on for greater detail, shows that Elmos Semiconductor had €99.9m in debt in September 2025; about the same as the year before. However, it does have €118.4m in cash offsetting this, leading to net cash of €18.5m.

How Healthy Is Elmos Semiconductor's Balance Sheet?

According to the last reported balance sheet, Elmos Semiconductor had liabilities of €83.6m due within 12 months, and liabilities of €111.0m due beyond 12 months. On the other hand, it had cash of €118.4m and €121.8m worth of receivables due within a year. So it actually has €45.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Elmos Semiconductor could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Elmos Semiconductor boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Elmos Semiconductor

Elmos Semiconductor's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Elmos Semiconductor can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Elmos Semiconductor may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Considering the last three years, Elmos Semiconductor actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Elmos Semiconductor has net cash of €18.5m, as well as more liquid assets than liabilities. So we don't have any problem with Elmos Semiconductor's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Elmos Semiconductor you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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 using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused 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.