U.S. Markets closed
  • S&P 500

    4,026.12
    -1.14 (-0.03%)
     
  • Dow 30

    34,347.03
    +152.97 (+0.45%)
     
  • Nasdaq

    11,226.36
    -58.96 (-0.52%)
     
  • Russell 2000

    1,869.19
    +5.67 (+0.30%)
     
  • Crude Oil

    76.28
    -1.66 (-2.13%)
     
  • Gold

    1,754.00
    +8.40 (+0.48%)
     
  • Silver

    21.43
    +0.06 (+0.29%)
     
  • EUR/USD

    1.0405
    -0.0008 (-0.0728%)
     
  • 10-Yr Bond

    3.6910
    -0.0150 (-0.40%)
     
  • Vix

    20.50
    +0.08 (+0.39%)
     
  • GBP/USD

    1.2091
    -0.0023 (-0.1935%)
     
  • USD/JPY

    139.1000
    +0.5100 (+0.3680%)
     
  • BTC-USD

    16,493.69
    -47.62 (-0.29%)
     
  • CMC Crypto 200

    386.9694
    +4.3152 (+1.13%)
     
  • FTSE 100

    7,486.67
    +20.07 (+0.27%)
     
  • Nikkei 225

    28,283.03
    -100.06 (-0.35%)
     

Does Sanmina (NASDAQ:SANM) Have A Healthy Balance Sheet?

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.' 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. Importantly, Sanmina Corporation (NASDAQ:SANM) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Sanmina

What Is Sanmina's Net Debt?

As you can see below, Sanmina had US$317.1m of debt at July 2022, down from US$355.7m a year prior. But it also has US$493.3m in cash to offset that, meaning it has US$176.2m net cash.

debt-equity-history-analysis
debt-equity-history-analysis

How Strong Is Sanmina's Balance Sheet?

The latest balance sheet data shows that Sanmina had liabilities of US$2.43b due within a year, and liabilities of US$508.1m falling due after that. On the other hand, it had cash of US$493.3m and US$1.69b worth of receivables due within a year. So it has liabilities totalling US$758.7m more than its cash and near-term receivables, combined.

Sanmina has a market capitalization of US$2.72b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Sanmina boasts net cash, so it's fair to say it does not have a heavy debt load!

Fortunately, Sanmina grew its EBIT by 4.6% in the last year, making that debt load look even more manageable. 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'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. Sanmina 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. Over the last three years, Sanmina recorded free cash flow worth a fulsome 92% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While Sanmina does have more liabilities than liquid assets, it also has net cash of US$176.2m. The cherry on top was that in converted 92% of that EBIT to free cash flow, bringing in US$220m. So is Sanmina's debt a risk? It doesn't seem so to us. 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. Be aware that Sanmina is showing 1 warning sign in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here