Is Keysight Technologies (NYSE:KEYS) a risky investment?

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Warren Buffett said: “Volatility is far from synonymous with risk. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Above all, Keysight Technologies, Inc. (NYSE:KEYS) is in debt. But should shareholders worry about its use of debt?

Why is debt risky?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we look at debt levels, we first consider cash and debt levels, together.

Check out our latest analysis for Keysight Technologies

What is Keysight Technologies’ net debt?

As you can see below, Keysight Technologies had $1.79 billion in debt as of April 2022, roughly the same as the previous year. You can click on the graph for more details. However, he has $1.89 billion in cash to offset that, which translates to net cash of $94.0 million.

NYSE: KEYS Debt to Equity June 19, 2022

A Look at Keysight Technologies’ Responsibilities

Zooming in on the latest balance sheet data, we can see that Keysight Technologies had liabilities of US$1.36 billion due within 12 months and liabilities of US$2.63 billion due beyond. As compensation for these obligations, it had cash of US$1.89 billion and receivables valued at US$803.0 million due within 12 months. It therefore has liabilities totaling $1.30 billion more than its cash and short-term receivables, combined.

Of course, Keysight Technologies has a titanic market cap of US$24.1 billion, so those liabilities are probably manageable. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future. While it has liabilities to note, Keysight Technologies also has more cash than debt, so we’re pretty confident it can manage its debt safely.

On top of that, we are pleased to report that Keysight Technologies increased its EBIT by 37%, reducing the specter of future debt repayments. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Keysight Technologies can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Finally, while the taxman may love accounting profits, lenders only accept cash. Keysight Technologies may have net cash on the balance sheet, but it’s always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs and its capacity. . to manage debt. Over the past three years, Keysight Technologies has actually produced more free cash flow than EBIT. This kind of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summary

We can understand that investors are worried about Keysight Technologies’ liabilities, but we can take comfort in the fact that it has a net cash position of $94.0 million. And it impressed us with free cash flow of $939 million, or 101% of its EBIT. We therefore do not believe that Keysight Technologies’ use of debt is risky. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, we found 1 warning sign for Keysight Technologies which you should be aware of before investing here.

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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