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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that QuickLogic Corporation (NASDAQ:QUIK) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does QuickLogic Carry?

As you can see below, QuickLogic had US$15.0m of debt, at October 2023, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$18.5m in cash, leading to a US$3.53m net cash position.

How Strong Is QuickLogic's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that QuickLogic had liabilities of US$22.1m due within 12 months and liabilities of US$457.0k due beyond that. Offsetting these obligations, it had cash of US$18.5m as well as receivables valued at US$5.68m due within 12 months. So it actually has US$1.70m more liquid assets than total liabilities.

This state of affairs indicates that QuickLogic's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$158.2m company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, QuickLogic boasts net cash, so it's fair to say it does not have a heavy debt load! 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 QuickLogic 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.

Over 12 months, QuickLogic reported revenue of US$18m, which is a gain of 13%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is QuickLogic?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year QuickLogic had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through US$3.4m of cash and made a loss of US$3.5m. But the saving grace is the US$3.53m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for QuickLogic that you should be aware of.

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.