Is Ion Beam Applications (EBR:IBAB) Using Too Much Debt?

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.' 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, Ion Beam Applications SA (EBR:IBAB) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Ion Beam Applications

What Is Ion Beam Applications's Debt?

You can click the graphic below for the historical numbers, but it shows that Ion Beam Applications had €14.5m of debt in June 2023, down from €36.7m, one year before. However, its balance sheet shows it holds €103.3m in cash, so it actually has €88.8m net cash.

A Look At Ion Beam Applications' Liabilities

The latest balance sheet data shows that Ion Beam Applications had liabilities of €478.0m due within a year, and liabilities of €45.3m falling due after that. Offsetting these obligations, it had cash of €103.3m as well as receivables valued at €188.6m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €231.5m.

This deficit is considerable relative to its market capitalization of €292.9m, so it does suggest shareholders should keep an eye on Ion Beam Applications' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. While it does have liabilities worth noting, Ion Beam Applications also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Ion Beam Applications's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Ion Beam Applications reported revenue of €371m, which is a gain of 10%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Ion Beam Applications?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Ion Beam Applications had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through €59m of cash and made a loss of €19m. Given it only has net cash of €88.8m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Ion Beam Applications that you should be aware of.

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.