These 4 Measures Indicate That International Seaways (NYSE:INSW) Is Using Debt Safely

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, International Seaways, Inc. (NYSE:INSW) does carry debt. But should shareholders be worried about its use of debt?

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 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for International Seaways

What Is International Seaways's Net Debt?

The image below, which you can click on for greater detail, shows that International Seaways had debt of US$131.0m at the end of December 2023, a reduction from US$509.7m over a year. However, its balance sheet shows it holds US$191.8m in cash, so it actually has US$60.8m net cash.

How Healthy Is International Seaways' Balance Sheet?

The latest balance sheet data shows that International Seaways had liabilities of US$195.6m due within a year, and liabilities of US$609.5m falling due after that. Offsetting these obligations, it had cash of US$191.8m as well as receivables valued at US$261.5m due within 12 months. So its liabilities total US$351.8m more than the combination of its cash and short-term receivables.

Given International Seaways has a market capitalization of US$2.60b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, International Seaways 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 International Seaways has boosted its EBIT by 37%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if International Seaways 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. International Seaways 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 two years, International Seaways recorded free cash flow worth 65% 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

Although International Seaways's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$60.8m. And we liked the look of last year's 37% year-on-year EBIT growth. So is International Seaways's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 3 warning signs for International Seaways (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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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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.