Is Incap Oyj (HEL:ICP1V) 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Incap Oyj (HEL:ICP1V) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.

What Is Incap Oyj's Net Debt?

The image below, which you can click on for greater detail, shows that Incap Oyj had debt of €23.5m at the end of March 2025, a reduction from €25.4m over a year. But it also has €61.4m in cash to offset that, meaning it has €37.8m net cash.

How Healthy Is Incap Oyj's Balance Sheet?

We can see from the most recent balance sheet that Incap Oyj had liabilities of €43.7m falling due within a year, and liabilities of €31.1m due beyond that. On the other hand, it had cash of €61.4m and €35.1m worth of receivables due within a year. So it actually has €21.7m more liquid assets than total liabilities.

This surplus suggests that Incap Oyj has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Incap Oyj boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Incap Oyj

Also positive, Incap Oyj grew its EBIT by 27% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Incap Oyj 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, a company can only pay off debt with cold hard cash, not accounting profits. Incap Oyj 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. Over the most recent three years, Incap Oyj recorded free cash flow worth 72% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Incap Oyj has net cash of €37.8m, as well as more liquid assets than liabilities. And we liked the look of last year's 27% year-on-year EBIT growth. So we don't think Incap Oyj's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. Be aware that Incap Oyj is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.