We Think INFICON Holding (VTX:IFCN) Can Stay On Top Of Its Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for INFICON Holding

How Much Debt Does INFICON Holding Carry?

As you can see below, INFICON Holding had US$84.4m of debt at June 2024, down from US$88.4m a year prior. However, its balance sheet shows it holds US$98.5m in cash, so it actually has US$14.1m net cash.

How Strong Is INFICON Holding's Balance Sheet?

The latest balance sheet data shows that INFICON Holding had liabilities of US$172.7m due within a year, and liabilities of US$10.9m falling due after that. Offsetting these obligations, it had cash of US$98.5m as well as receivables valued at US$89.0m due within 12 months. So it actually has US$3.85m 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$3.43b company is struggling for cash, we still think it's worth monitoring its 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.

Also good is that INFICON Holding grew its EBIT at 12% over the last year, further increasing its ability to manage 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're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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 44% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case INFICON Holding has US$14.1m in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 12% in the last twelve months. So is INFICON Holding's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in INFICON Holding, you may well want to click here to check an interactive graph of its earnings per share history.

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.