INFICON Holding (VTX:IFCN) Has A Rock Solid Balance Sheet

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. We can see that INFICON Holding AG (VTX:IFCN) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for INFICON Holding

What Is INFICON Holding's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 INFICON Holding had US$47.8m of debt, an increase on US$43.4m, over one year. But it also has US$74.9m in cash to offset that, meaning it has US$27.1m net cash.

How Healthy Is INFICON Holding's Balance Sheet?

According to the last reported balance sheet, INFICON Holding had liabilities of US$119.1m due within 12 months, and liabilities of US$14.4m due beyond 12 months. Offsetting these obligations, it had cash of US$74.9m as well as receivables valued at US$73.7m due within 12 months. So it can boast US$15.0m more liquid assets than total liabilities.

This state of affairs indicates that INFICON Holding's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$3.01b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that INFICON Holding has more cash than debt is arguably a good indication that it can manage its debt safely.

Another good sign is that INFICON Holding has been able to increase its EBIT by 28% in twelve months, making it easier to pay down 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 INFICON Holding 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. While INFICON Holding 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. Over the most recent three years, INFICON Holding recorded free cash flow worth 58% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that INFICON Holding has net cash of US$27.1m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 28% over the last year. So we don't think INFICON Holding's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of INFICON Holding's earnings per share history for free.

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.

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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