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

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that INFICON Holding AG (VTX:IFCN) does have debt on its balance sheet. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

View our latest analysis for INFICON Holding

What Is INFICON Holding's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 INFICON Holding had US$43.4m of debt, an increase on US$10.8m, over one year. But on the other hand it also has US$45.9m in cash, leading to a US$2.52m net cash position.

A Look At INFICON Holding's Liabilities

The latest balance sheet data shows that INFICON Holding had liabilities of US$142.1m due within a year, and liabilities of US$9.90m falling due after that. Offsetting these obligations, it had cash of US$45.9m as well as receivables valued at US$96.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$9.54m.

Having regard to INFICON Holding's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$2.39b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, INFICON Holding also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also good is that INFICON Holding grew its EBIT at 11% over the last year, further increasing its ability to manage 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 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs 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. In the last three years, INFICON Holding's free cash flow amounted to 39% of its EBIT, less 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. And it also grew its EBIT by 11% over the last year. So we are not troubled with INFICON Holding's debt use. 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. For example, we've discovered 2 warning signs for INFICON Holding (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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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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.