Is ImmuCell (NASDAQ:ICCC) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies ImmuCell Corporation (NASDAQ:ICCC) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for ImmuCell

How Much Debt Does ImmuCell Carry?

As you can see below, at the end of September 2020, ImmuCell had US$9.72m of debt, up from US$8.48m a year ago. Click the image for more detail. However, it also had US$5.91m in cash, and so its net debt is US$3.81m.

A Look At ImmuCell's Liabilities

The latest balance sheet data shows that ImmuCell had liabilities of US$1.80m due within a year, and liabilities of US$10.2m falling due after that. Offsetting these obligations, it had cash of US$5.91m as well as receivables valued at US$1.61m due within 12 months. So it has liabilities totalling US$4.44m more than its cash and near-term receivables, combined.

Given ImmuCell has a market capitalization of US$77.7m, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine ImmuCell's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year ImmuCell wasn't profitable at an EBIT level, but managed to grow its revenue by 12%, to US$15m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, ImmuCell had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$1.4m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$3.4m in negative free cash flow over the last twelve months. So to be blunt we think it is 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. To that end, you should learn about the 4 warning signs we've spotted with ImmuCell (including 1 which is a bit unpleasant) .

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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