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Tower Semiconductor (NASDAQ:TSEM) Seems To Use Debt Quite Sensibly

Simply Wall St · 2d ago

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 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. Importantly, Tower Semiconductor Ltd. (NASDAQ:TSEM) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Tower Semiconductor's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Tower Semiconductor had US$164.1m of debt in September 2025, down from US$193.3m, one year before. But it also has US$1.22b in cash to offset that, meaning it has US$1.06b net cash.

debt-equity-history-analysis
NasdaqGS:TSEM Debt to Equity History December 26th 2025

A Look At Tower Semiconductor's Liabilities

Zooming in on the latest balance sheet data, we can see that Tower Semiconductor had liabilities of US$269.2m due within 12 months and liabilities of US$150.8m due beyond that. On the other hand, it had cash of US$1.22b and US$213.0m worth of receivables due within a year. So it can boast US$1.02b more liquid assets than total liabilities.

This short term liquidity is a sign that Tower Semiconductor could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Tower Semiconductor has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Tower Semiconductor

On the other hand, Tower Semiconductor saw its EBIT drop by 7.6% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its 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 Tower Semiconductor 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Tower Semiconductor has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Tower Semiconductor's free cash flow amounted to 36% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Tower Semiconductor has US$1.06b in net cash and a decent-looking balance sheet. So we are not troubled with Tower Semiconductor's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in Tower Semiconductor, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.