Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) Seems To Use Debt Quite Sensibly

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, Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) does carry debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

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

How Much Debt Does Intelbras - Indústria de Telecomunicação Eletrônica Brasileira Carry?

As you can see below, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira had R$903.2m of debt at June 2024, down from R$950.9m a year prior. But on the other hand it also has R$1.25b in cash, leading to a R$346.4m net cash position.

A Look At Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's Liabilities

According to the last reported balance sheet, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira had liabilities of R$1.89b due within 12 months, and liabilities of R$840.1m due beyond 12 months. On the other hand, it had cash of R$1.25b and R$1.28b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by R$198.1m.

Since publicly traded Intelbras - Indústria de Telecomunicação Eletrônica Brasileira shares are worth a total of R$6.58b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira also has more cash than debt, so we're pretty confident it can manage its debt safely.

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. The balance sheet is clearly the area to focus on when you are analysing debt. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Intelbras - Indústria de Telecomunicação Eletrônica Brasileira 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. During the last three years, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira produced sturdy free cash flow equating to 67% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's liabilities, but we can be reassured by the fact it has has net cash of R$346.4m. The cherry on top was that in converted 67% of that EBIT to free cash flow, bringing in R$368m. So is Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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