Stock Analysis

II-VI (NASDAQ:IIVI) Has A Rock Solid Balance Sheet

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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. Importantly, II-VI Incorporated (NASDAQ:IIVI) does carry debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for II-VI

What Is II-VI's Net Debt?

You can click the graphic below for the historical numbers, but it shows that II-VI had US$1.42b of debt in March 2021, down from US$2.28b, one year before. But it also has US$1.54b in cash to offset that, meaning it has US$116.5m net cash.

NasdaqGS:IIVI Debt to Equity History July 16th 2021

How Strong Is II-VI's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that II-VI had liabilities of US$678.8m due within 12 months and liabilities of US$1.64b due beyond that. Offsetting these obligations, it had cash of US$1.54b as well as receivables valued at US$615.2m due within 12 months. So it has liabilities totalling US$169.9m more than its cash and near-term receivables, combined.

Of course, II-VI has a market capitalization of US$7.38b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, II-VI boasts net cash, so it's fair to say it does not have a heavy debt load!

Notably, II-VI's EBIT launched higher than Elon Musk, gaining a whopping 103% on last year. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine II-VI'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. II-VI 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 three years, II-VI recorded free cash flow worth 78% 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

While it is always sensible to look at a company's total liabilities, it is very reassuring that II-VI has US$116.5m in net cash. And it impressed us with its EBIT growth of 103% over the last year. So is II-VI's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of II-VI's earnings per share history for free.

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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What are the risks and opportunities for Coherent?

Coherent Corp. develops, manufactures, and markets engineered materials, optoelectronic components, and devices worldwide.

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  • Earnings are forecast to grow 122.54% per year


  • Interest payments are not well covered by earnings

  • Shareholders have been diluted in the past year

  • Profit margins (0.9%) are lower than last year (8.8%)

  • Large one-off items impacting financial results

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