We Think iNtRON Biotechnology (KOSDAQ:048530) Can Stay On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that iNtRON Biotechnology, Inc. (KOSDAQ:048530) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

Check out our latest analysis for iNtRON Biotechnology

What Is iNtRON Biotechnology's Debt?

The image below, which you can click on for greater detail, shows that iNtRON Biotechnology had debt of ₩9.85b at the end of December 2020, a reduction from ₩14.5b over a year. But on the other hand it also has ₩66.2b in cash, leading to a ₩56.3b net cash position.

How Strong Is iNtRON Biotechnology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that iNtRON Biotechnology had liabilities of ₩12.7b due within 12 months and liabilities of ₩2.45b due beyond that. Offsetting this, it had ₩66.2b in cash and ₩12.2b in receivables that were due within 12 months. So it can boast ₩63.2b more liquid assets than total liabilities.

This short term liquidity is a sign that iNtRON Biotechnology could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, iNtRON Biotechnology boasts net cash, so it's fair to say it does not have a heavy debt load!

It was also good to see that despite losing money on the EBIT line last year, iNtRON Biotechnology turned things around in the last 12 months, delivering and EBIT of ₩16b. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine iNtRON Biotechnology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

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. In the last year, iNtRON Biotechnology created free cash flow amounting to 15% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing up

While it is always sensible to investigate a company's debt, in this case iNtRON Biotechnology has ₩56.3b in net cash and a decent-looking balance sheet. So we are not troubled with iNtRON Biotechnology's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 3 warning signs we've spotted with iNtRON Biotechnology (including 1 which is concerning) .

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. 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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