ImmuCell (NASDAQ:ICCC) Is Making Moderate Use Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that ImmuCell Corporation (NASDAQ:ICCC) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for ImmuCell

What Is ImmuCell's Net Debt?

The image below, which you can click on for greater detail, shows that ImmuCell had debt of US$10.9m at the end of September 2024, a reduction from US$12.3m over a year. However, it also had US$3.81m in cash, and so its net debt is US$7.09m.

How Strong Is ImmuCell's Balance Sheet?

We can see from the most recent balance sheet that ImmuCell had liabilities of US$4.47m falling due within a year, and liabilities of US$13.6m due beyond that. On the other hand, it had cash of US$3.81m and US$2.34m worth of receivables due within a year. So it has liabilities totalling US$11.9m more than its cash and near-term receivables, combined.

ImmuCell has a market capitalization of US$36.7m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since ImmuCell 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 ImmuCell wasn't profitable at an EBIT level, but managed to grow its revenue by 46%, to US$24m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, ImmuCell still had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$2.7m. 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. However, it doesn't help that it burned through US$713k of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. For instance, we've identified 3 warning signs for ImmuCell (1 is a bit unpleasant) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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