Rotten Tomato Stocks
No Result
View All Result
  • News
    Stocks Drop in an Ugly Day as Allure Grows to Buy a Treasury Bill and Chill

    Stocks Drop in an Ugly Day as Allure Grows to Buy a Treasury Bill and Chill

    15,000 Pounds Of Smoked Sausage Recalled For ‘Bone Fragments’ After Being Shipped To Seven States

    15,000 Pounds Of Smoked Sausage Recalled For ‘Bone Fragments’ After Being Shipped To Seven States

    Asian Shares Decline Ahead of Fed Decision on Rates

    Asian Shares Decline Ahead of Fed Decision on Rates

    Canadian Food Inspection Agency orders mushroom recall for Listeria contamination

    Canadian Food Inspection Agency orders mushroom recall for Listeria contamination

  • NYSE
    Greenfire Resources Shares Fall on NYSE Debut

    Greenfire Resources Shares Fall on NYSE Debut

    Salesforce Inc. stock falls Thursday, underperforms market

    Salesforce Inc. stock falls Thursday, underperforms market

    These 4 Measures Indicate That Sempra (NYSE:SRE) Is Using Debt Extensively

    These 4 Measures Indicate That Sempra (NYSE:SRE) Is Using Debt Extensively

    Oracle (NYSE:ORCL) Takes On Some Risk With Its Use Of Debt

    Oracle (NYSE:ORCL) Takes On Some Risk With Its Use Of Debt

  • NASDAQ
    Aadi Bioscience, Inc. (NASDAQ:AADI) Short Interest Down 5.1% in August

    Aadi Bioscience, Inc. (NASDAQ:AADI) Short Interest Down 5.1% in August

    Beyond Meat Inc. stock falls Thursday, underperforms market

    Beyond Meat Inc. stock falls Thursday, underperforms market

    Brighthouse Financial Shares Fall 6.7% on Goldman Sachs Rating Cut

    Brighthouse Financial Shares Fall 6.7% on Goldman Sachs Rating Cut

    Real Good Food Revenue Falls on Tough Market Conditions in US, Europe

    Real Good Food Revenue Falls on Tough Market Conditions in US, Europe

  • OTC
    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    Corus Entertainment 4Q Profit Falls

    Corus Entertainment 4Q Profit Falls

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

  • TSX
    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    Bitcoin Is Falling: Should You Buy the Dip?

    Bitcoin Is Falling: Should You Buy the Dip?

    CN Rail Stock Is So Undervalued That it’s Absurd

    CN Rail Stock Is So Undervalued That it’s Absurd

  • News
    Stocks Drop in an Ugly Day as Allure Grows to Buy a Treasury Bill and Chill

    Stocks Drop in an Ugly Day as Allure Grows to Buy a Treasury Bill and Chill

    15,000 Pounds Of Smoked Sausage Recalled For ‘Bone Fragments’ After Being Shipped To Seven States

    15,000 Pounds Of Smoked Sausage Recalled For ‘Bone Fragments’ After Being Shipped To Seven States

    Asian Shares Decline Ahead of Fed Decision on Rates

    Asian Shares Decline Ahead of Fed Decision on Rates

    Canadian Food Inspection Agency orders mushroom recall for Listeria contamination

    Canadian Food Inspection Agency orders mushroom recall for Listeria contamination

  • NYSE
    Greenfire Resources Shares Fall on NYSE Debut

    Greenfire Resources Shares Fall on NYSE Debut

    Salesforce Inc. stock falls Thursday, underperforms market

    Salesforce Inc. stock falls Thursday, underperforms market

    These 4 Measures Indicate That Sempra (NYSE:SRE) Is Using Debt Extensively

    These 4 Measures Indicate That Sempra (NYSE:SRE) Is Using Debt Extensively

    Oracle (NYSE:ORCL) Takes On Some Risk With Its Use Of Debt

    Oracle (NYSE:ORCL) Takes On Some Risk With Its Use Of Debt

  • NASDAQ
    Aadi Bioscience, Inc. (NASDAQ:AADI) Short Interest Down 5.1% in August

    Aadi Bioscience, Inc. (NASDAQ:AADI) Short Interest Down 5.1% in August

    Beyond Meat Inc. stock falls Thursday, underperforms market

    Beyond Meat Inc. stock falls Thursday, underperforms market

    Brighthouse Financial Shares Fall 6.7% on Goldman Sachs Rating Cut

    Brighthouse Financial Shares Fall 6.7% on Goldman Sachs Rating Cut

    Real Good Food Revenue Falls on Tough Market Conditions in US, Europe

    Real Good Food Revenue Falls on Tough Market Conditions in US, Europe

  • OTC
    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    China Eastern Airlines 3Q Loss Widens on Low Travel Demand

    Corus Entertainment 4Q Profit Falls

    Corus Entertainment 4Q Profit Falls

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Nintendo Co. Ltd. ADR falls Monday, still outperforms market

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

    Ocado Group PLC Revenue of Ocado Retail in Q3 Fell 10.6%

  • TSX
    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    S&P/TSX composite falls on drop in materials sector, loonie tops 81 cents US

    Bitcoin Is Falling: Should You Buy the Dip?

    Bitcoin Is Falling: Should You Buy the Dip?

    CN Rail Stock Is So Undervalued That it’s Absurd

    CN Rail Stock Is So Undervalued That it’s Absurd

No Result
View All Result
Rotten Tomato Stocks
No Result
View All Result

Is Super Micro Computer (NASDAQ:SMCI) Using Too Much Debt?

Editorial Staff by Editorial Staff
March 9, 2022
0
Is Super Micro Computer (NASDAQ:SMCI) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Super Micro Computer, Inc. (NASDAQ:SMCI) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company’s debt levels is to consider its cash and debt together.

What Is Super Micro Computer’s Net Debt?

As you can see below, at the end of December 2021, Super Micro Computer had US$315.9m of debt, up from US$45.5m a year ago. Click the image for more detail. However, it also had US$247.4m in cash, and so its net debt is US$68.5m.

debt-equity-history-analysis
NasdaqGS:SMCI Debt to Equity History March 6th 2022

A Look At Super Micro Computer’s Liabilities

Zooming in on the latest balance sheet data, we can see that Super Micro Computer had liabilities of US$1.20b due within 12 months and liabilities of US$290.2m due beyond that. Offsetting this, it had US$247.4m in cash and US$617.5m in receivables that were due within 12 months. So it has liabilities totalling US$624.8m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Super Micro Computer has a market capitalization of US$2.14b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it’s clear that we should definitely closely examine whether it can manage its debt without dilution.

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Super Micro Computer has net debt of just 0.41 times EBITDA, suggesting it could ramp leverage without breaking a sweat. And remarkably, despite having net debt, it actually received more in interest over the last twelve months than it had to pay. So there’s no doubt this company can take on debt while staying cool as a cucumber. Another good sign is that Super Micro Computer has been able to increase its EBIT by 24% in twelve months, making it easier to pay down debt. 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 Super Micro Computer can strengthen its balance sheet over time.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So it’s worth checking how much of that EBIT is backed by free cash flow. Considering the last three years, Super Micro Computer actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement.

Our View

Both Super Micro Computer’s ability to to cover its interest expense with its EBIT and its net debt to EBITDA gave us comfort that it can handle its debt. But truth be told its conversion of EBIT to free cash flow had us nibbling our nails. Considering this range of data points, we think Super Micro Computer is in a good position to manage its debt levels. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. 

Related Posts

Aadi Bioscience, Inc. (NASDAQ:AADI) Short Interest Down 5.1% in August
NASDAQ

Aadi Bioscience, Inc. (NASDAQ:AADI) Short Interest Down 5.1% in August

September 21, 2023
Beyond Meat Inc. stock falls Thursday, underperforms market
NASDAQ

Beyond Meat Inc. stock falls Thursday, underperforms market

September 21, 2023
Brighthouse Financial Shares Fall 6.7% on Goldman Sachs Rating Cut
NASDAQ

Brighthouse Financial Shares Fall 6.7% on Goldman Sachs Rating Cut

September 21, 2023
Real Good Food Revenue Falls on Tough Market Conditions in US, Europe
NASDAQ

Real Good Food Revenue Falls on Tough Market Conditions in US, Europe

September 21, 2023
Load More
Next Post
Invesco Ltd. (NYSE:IVZ) Sees Significant Decline in Short Interest

Invesco Ltd. (NYSE:IVZ) Sees Significant Decline in Short Interest

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

I agree to the Terms & Conditions and Privacy Policy.

POPULAR NEWS

CNH Industrial (NYSE:CNHI) Use Of Debt Could Be Considered Risky

CNH Industrial (NYSE:CNHI) Use Of Debt Could Be Considered Risky

April 14, 2021
CN Rail Stock Is So Undervalued That it’s Absurd

CN Rail Stock Is So Undervalued That it’s Absurd

May 2, 2021
Corus Entertainment 4Q Profit Falls

Corus Entertainment 4Q Profit Falls

October 22, 2021
Bitcoin Is Falling: Should You Buy the Dip?

Bitcoin Is Falling: Should You Buy the Dip?

May 3, 2021
US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

US Seeks to Fine Air Canada $25.5 Million Over Slow Refunds

June 17, 2021

EDITOR'S PICK

Is Gevo (NASDAQ:GEVO) A Risky Investment?

Is Gevo (NASDAQ:GEVO) A Risky Investment?

November 5, 2021
There’s Some Bad News About a Fourth Stimulus Check

There’s Some Bad News About a Fourth Stimulus Check

June 1, 2021
BankUnited (NYSE:BKU) Stock Rating Lowered by Piper Sandler

BankUnited (NYSE:BKU) Stock Rating Lowered by Piper Sandler

May 11, 2022
Is Pinnacle West Capital (NYSE:PNW) Using Too Much Debt?

Is Pinnacle West Capital (NYSE:PNW) Using Too Much Debt?

December 7, 2021

Stay Updated

Get breaking news delivered straight into your inbox

Nothing in this publication should be considered as personalized financial advice. We are not licensed under securities laws to address your particular financial situation. No communication by our employees to you should be deemed as personalized financial advice. Please consult a licensed financial advisor before making any investment decision. This is a paid advertisement and is neither an offer nor recommendation to buy or sell any security. We hold no investment licenses and are thus neither licensed nor qualified to provide investment advice. The content in this report or email is not provided to any individual with a view toward their individual circumstances. Rotten Tomato stocks is a wholly-owned subsidiary of Grainne Capital Limited.
While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our newsletter is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between the any predictions and actual results. Always consult a licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment.

Rotten Tomato Stocks cover the companies and markets that are declining, failing or headed for disaster. We help investors spot the down tends and recognize when something smells rotten.

RECENT POSTS

Stocks Drop in an Ugly Day as Allure Grows to Buy a Treasury Bill and Chill

Greenfire Resources Shares Fall on NYSE Debut

Salesforce Inc. stock falls Thursday, underperforms market

POPULAR POSTS

These 4 Measures Indicate That Sempra (NYSE:SRE) Is Using Debt Extensively

Aadi Bioscience, Inc. (NASDAQ:AADI) Short Interest Down 5.1% in August

Beyond Meat Inc. stock falls Thursday, underperforms market

© Copyright 2023 RottenTomatoStocks. All Rights Reserved 

Disclaimer | Privacy Policy

No Result
View All Result
  • HOME
  • NEWS
  • NYSE
  • NASDAQ
  • OTC
  • TSX

© 2021 RottenTomatoStocks.com

error: Content is protected !!
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.