We Think INFICON Holding (VTX:IFCN) Can Manage Its Debt With Ease

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.' 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. As with many other companies INFICON Holding AG (VTX:IFCN) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 June 2021, INFICON Holding had US$47.8m of debt, up from US$43.4m a year ago. Click the image for more detail. But it also has US$74.9m in cash to offset that, meaning it has US$27.1m net cash.

How Strong Is INFICON Holding's Balance Sheet?

We can see from the most recent balance sheet that INFICON Holding had liabilities of US$119.1m falling due within a year, and liabilities of US$14.4m due beyond that. Offsetting this, it had US$74.9m in cash and US$73.7m in receivables that were 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$2.82b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, INFICON Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

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 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. 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 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 is INFICON Holding's debt a risk? It doesn't seem so to us. 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.

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.
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