The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. As with many other companies Sanmina Corporation (NASDAQ:SANM) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 uses is to look at its cash and debt together.

See our latest analysis for Sanmina

What Is Sanmina's Debt?

As you can see below, Sanmina had US$338.9m of debt at January 2022, down from US$369.6m a year prior. But on the other hand it also has US$627.7m in cash, leading to a US$288.8m net cash position.

A Look At Sanmina's Liabilities

We can see from the most recent balance sheet that Sanmina had liabilities of US$2.07b falling due within a year, and liabilities of US$555.5m due beyond that. On the other hand, it had cash of US$627.7m and US$1.66b worth of receivables due within a year. So it has liabilities totalling US$330.3m more than its cash and near-term receivables, combined.

Given Sanmina has a market capitalization of US$2.67b, it's hard to believe these liabilities pose much 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, Sanmina boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Sanmina has increased its EBIT by 8.4% over twelve months, which should ease any concerns about debt repayment. 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 Sanmina can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.