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.' 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. We note that INFICON Holding AG (VTX:IFCN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is INFICON Holding's Net Debt?

The image below, which you can click on for greater detail, shows that INFICON Holding had debt of US$44.3m at the end of December 2024, a reduction from US$57.2m over a year. However, it does have US$119.2m in cash offsetting this, leading to net cash of US$74.9m.

A Look At INFICON Holding's Liabilities

We can see from the most recent balance sheet that INFICON Holding had liabilities of US$134.0m falling due within a year, and liabilities of US$12.0m due beyond that. Offsetting these obligations, it had cash of US$119.2m as well as receivables valued at US$88.3m due within 12 months. So it can boast US$61.5m more liquid assets than total liabilities.

This short term liquidity is a sign that INFICON Holding could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that INFICON Holding has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for INFICON Holding

INFICON Holding's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine INFICON Holding's ability to maintain a healthy balance sheet going forward. 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. During the last three years, INFICON Holding produced sturdy free cash flow equating to 51% 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$74.9m in net cash and a decent-looking balance sheet. So we don't have any problem with INFICON Holding's use of debt. 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.

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.