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Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that MKS Instruments, Inc. (NASDAQ:MKSI) does have debt on its balance sheet. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 step when considering a company's debt levels is to consider its cash and debt together.
View our latest analysis for MKS Instruments
What Is MKS Instruments's Net Debt?
The chart below, which you can click on for greater detail, shows that MKS Instruments had US$833.2m in debt in March 2021; about the same as the year before. But it also has US$909.5m in cash to offset that, meaning it has US$76.3m net cash.
How Healthy Is MKS Instruments' Balance Sheet?
We can see from the most recent balance sheet that MKS Instruments had liabilities of US$371.9m falling due within a year, and liabilities of US$1.18b due beyond that. On the other hand, it had cash of US$909.5m and US$424.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$215.1m.
Since publicly traded MKS Instruments shares are worth a very impressive total of US$10.1b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, MKS Instruments boasts net cash, so it's fair to say it does not have a heavy debt load!
In addition to that, we're happy to report that MKS Instruments has boosted its EBIT by 78%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine MKS Instruments's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.