We Think IMC (WSE:IMC) 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 IMC S.A. (WSE:IMC) does use debt in its business. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is IMC's Net Debt?

The image below, which you can click on for greater detail, shows that IMC had debt of US$23.3m at the end of December 2024, a reduction from US$45.7m over a year. However, its balance sheet shows it holds US$44.6m in cash, so it actually has US$21.3m net cash.

How Healthy Is IMC's Balance Sheet?

We can see from the most recent balance sheet that IMC had liabilities of US$35.8m falling due within a year, and liabilities of US$105.1m due beyond that. Offsetting these obligations, it had cash of US$44.6m as well as receivables valued at US$6.08m due within 12 months. So it has liabilities totalling US$90.2m more than its cash and near-term receivables, combined.

This deficit isn't so bad because IMC is worth US$288.2m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, IMC also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for IMC

Although IMC made a loss at the EBIT level, last year, it was also good to see that it generated US$67m in EBIT over the last twelve months. 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 IMC 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 IMC 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. Happily for any shareholders, IMC actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While IMC does have more liabilities than liquid assets, it also has net cash of US$21.3m. The cherry on top was that in converted 102% of that EBIT to free cash flow, bringing in US$68m. So we are not troubled with IMC's debt use. 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. Case in point: We've spotted 2 warning signs for IMC you should be aware of.

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.