Does Inter Parfums (NASDAQ:IPAR) Have A Healthy Balance Sheet?

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. Importantly, Inter Parfums, Inc. (NASDAQ:IPAR) does carry debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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.

View our latest analysis for Inter Parfums

What Is Inter Parfums's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2023 Inter Parfums had US$172.6m of debt, an increase on US$130.7m, over one year. However, it does have US$186.8m in cash offsetting this, leading to net cash of US$14.2m.

How Healthy Is Inter Parfums' Balance Sheet?

According to the last reported balance sheet, Inter Parfums had liabilities of US$341.7m due within 12 months, and liabilities of US$163.1m due beyond 12 months. On the other hand, it had cash of US$186.8m and US$251.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$66.3m.

This state of affairs indicates that Inter Parfums' balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$4.31b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Inter Parfums 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 Inter Parfums has boosted its EBIT by 49%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Inter Parfums 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Inter Parfums 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. In the last three years, Inter Parfums basically broke even on a free cash flow basis. While many companies do operate at break-even, we prefer see substantial free cash flow, especially if a it already has dead.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Inter Parfums has US$14.2m in net cash. And it impressed us with its EBIT growth of 49% over the last year. So we are not troubled with Inter Parfums's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Inter Parfums you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.