Is INFICON Holding (VTX:IFCN) Using Too Much Debt?

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, INFICON Holding AG (VTX:IFCN) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for INFICON Holding

What Is INFICON Holding's Debt?

As you can see below, INFICON Holding had US$10.8m of debt at December 2021, down from US$19.2m a year prior. However, its balance sheet shows it holds US$65.6m in cash, so it actually has US$54.9m net cash.

How Healthy Is INFICON Holding's Balance Sheet?

We can see from the most recent balance sheet that INFICON Holding had liabilities of US$100.8m falling due within a year, and liabilities of US$11.7m due beyond that. Offsetting this, it had US$65.6m in cash and US$82.1m in receivables that were due within 12 months. So it can boast US$35.2m more liquid assets than total liabilities.

Having regard to INFICON Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the US$2.64b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, INFICON Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, INFICON Holding grew its EBIT by 62% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. 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. 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. During the last three years, INFICON Holding produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing up

While it is always sensible to investigate a company's debt, in this case INFICON Holding has US$54.9m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 62% over the last year. So is INFICON Holding's debt a risk? It doesn't seem so to us. 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. We've identified 1 warning sign with INFICON Holding , and understanding them should be part of your investment process.

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.