Cadence Design Systems (NASDAQ:CDNS) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Cadence Design Systems, Inc. (NASDAQ:CDNS) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Cadence Design Systems's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Cadence Design Systems had US$2.48b of debt, an increase on US$1.35b, over one year. But it also has US$3.00b in cash to offset that, meaning it has US$522.8m net cash.NasdaqGS:CDNS Debt to Equity History October 18th 2025

A Look At Cadence Design Systems' Liabilities

Zooming in on the latest balance sheet data, we can see that Cadence Design Systems had liabilities of US$1.50b due within 12 months and liabilities of US$3.01b due beyond that. Offsetting this, it had US$3.00b in cash and US$753.8m in receivables that were due within 12 months. So its liabilities total US$747.4m more than the combination of its cash and short-term receivables.

Having regard to Cadence Design Systems' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$88.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Cadence Design Systems also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Cadence Design Systems

On top of that, Cadence Design Systems grew its EBIT by 31% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Cadence Design Systems's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this freereport showing analyst profit forecasts.

Story Continues

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Cadence Design Systems 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. During the last three years, Cadence Design Systems generated free cash flow amounting to a very robust 95% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

We could understand if investors are concerned about Cadence Design Systems's liabilities, but we can be reassured by the fact it has has net cash of US$522.8m. And it impressed us with free cash flow of US$1.6b, being 95% of its EBIT. So we don't think Cadence Design Systems's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Cadence Design Systems, you may well want to click here to check an interactive graph of its earnings per share history.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.

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