Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) Has A Pretty Healthy Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) does carry debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira

What Is Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's Debt?

As you can see below, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira had R$941.5m of debt at March 2024, down from R$987.3m a year prior. However, it does have R$1.36b in cash offsetting this, leading to net cash of R$423.2m.

How Strong Is Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's Balance Sheet?

The latest balance sheet data shows that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira had liabilities of R$1.53b due within a year, and liabilities of R$908.8m falling due after that. Offsetting this, it had R$1.36b in cash and R$1.12b in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the R$7.69b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira boasts net cash, so it's fair to say it does not have a heavy debt load!

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Intelbras - Indústria de Telecomunicação Eletrônica Brasileira can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Intelbras - Indústria de Telecomunicação Eletrônica Brasileira 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, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has net cash of R$423.2m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of R$467m, being 68% of its EBIT. So is Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Intelbras - Indústria de Telecomunicação Eletrônica Brasileira , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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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