David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 ACM Research, Inc. (NASDAQ:ACMR) makes use of debt. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is ACM Research's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 ACM Research had US$170.5m of debt, an increase on US$80.4m, over one year. But on the other hand it also has US$374.1m in cash, leading to a US$203.6m net cash position.

How Strong Is ACM Research's Balance Sheet?

The latest balance sheet data shows that ACM Research had liabilities of US$610.0m due within a year, and liabilities of US$115.1m falling due after that. Offsetting this, it had US$374.1m in cash and US$428.4m in receivables that were due within 12 months. So it actually has US$77.5m more liquid assets than total liabilities.

This surplus suggests that ACM Research has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that ACM Research has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, ACM Research grew its EBIT by 46% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine ACM Research'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. ACM Research 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. During the last three years, ACM Research burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that ACM Research has net cash of US$203.6m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 46% over the last year. So we are not troubled with ACM Research's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for ACM Research that you should be aware of before investing here.

If, after all that, you're more interested in a fast growing company with a rock-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 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.