iNtRON Biotechnology (KOSDAQ:048530) Has A Rock Solid Balance Sheet

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. We note that iNtRON Biotechnology, Inc. (KOSDAQ:048530) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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 iNtRON Biotechnology

What Is iNtRON Biotechnology's Net Debt?

You can click the graphic below for the historical numbers, but it shows that iNtRON Biotechnology had ₩10.3b of debt in September 2020, down from ₩14.2b, one year before. But on the other hand it also has ₩67.3b in cash, leading to a ₩57.1b net cash position.

How Healthy Is iNtRON Biotechnology's Balance Sheet?

We can see from the most recent balance sheet that iNtRON Biotechnology had liabilities of ₩16.5b falling due within a year, and liabilities of ₩875.6m due beyond that. Offsetting these obligations, it had cash of ₩67.3b as well as receivables valued at ₩9.37b due within 12 months. So it actually has ₩59.3b more liquid assets than total liabilities.

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

In addition to that, we're happy to report that iNtRON Biotechnology has boosted its EBIT by 78%, thus reducing the spectre of future debt repayments. 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 iNtRON Biotechnology 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 iNtRON Biotechnology 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 two years, iNtRON Biotechnology produced sturdy free cash flow equating to 59% 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 iNtRON Biotechnology has net cash of ₩57.1b, as well as more liquid assets than liabilities. And we liked the look of last year's 78% year-on-year EBIT growth. So we don't think iNtRON Biotechnology's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Consider risks, for instance. Every company has them, and we've spotted 3 warning signs for iNtRON Biotechnology you should know about.

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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