Is Intech Biopharm (GTSM:6461) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Intech Biopharm Corporation (GTSM:6461) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 Intech Biopharm

What Is Intech Biopharm's Debt?

The image below, which you can click on for greater detail, shows that Intech Biopharm had debt of NT$937.7m at the end of September 2020, a reduction from NT$1.09b over a year. However, it does have NT$103.1m in cash offsetting this, leading to net debt of about NT$834.7m.

A Look At Intech Biopharm's Liabilities

The latest balance sheet data shows that Intech Biopharm had liabilities of NT$140.4m due within a year, and liabilities of NT$900.4m falling due after that. On the other hand, it had cash of NT$103.1m and NT$11.1m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$926.7m.

This deficit isn't so bad because Intech Biopharm is worth NT$2.01b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Intech Biopharm will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Intech Biopharm wasn't profitable at an EBIT level, but managed to grow its revenue by 7.9%, to NT$19m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, Intech Biopharm had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping NT$258m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled NT$229m in negative free cash flow over the last twelve months. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with Intech Biopharm (including 3 which make us uncomfortable) .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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