INFICON Holding (VTX:IFCN) Seems To Use Debt Quite Sensibly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, INFICON Holding AG (VTX:IFCN) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for INFICON Holding

What Is INFICON Holding's Debt?

As you can see below, at the end of December 2022, INFICON Holding had US$43.4m of debt, up from US$10.8m a year ago. Click the image for more detail. But on the other hand it also has US$45.9m in cash, leading to a US$2.52m net cash position.

How Healthy Is INFICON Holding's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that INFICON Holding had liabilities of US$142.1m due within 12 months and liabilities of US$9.90m due beyond that. Offsetting this, it had US$45.9m in cash and US$96.5m in receivables that were due within 12 months. So it has liabilities totalling US$9.54m more than its cash and near-term receivables, combined.

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$2.75b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, INFICON Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that INFICON Holding grew its EBIT at 11% over the last year, further increasing its ability to manage 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. INFICON Holding 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. Looking at the most recent three years, INFICON Holding recorded free cash flow of 39% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about INFICON Holding's liabilities, but we can be reassured by the fact it has has net cash of US$2.52m. On top of that, it increased its EBIT by 11% in the last twelve months. So we don't have any problem with INFICON Holding's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for INFICON Holding (1 can't be ignored) you should be aware of.

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.