We Think Integrated Media Technology (NASDAQ:IMTE) Has A Fair Chunk Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Integrated Media Technology Limited (NASDAQ:IMTE) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Integrated Media Technology

How Much Debt Does Integrated Media Technology Carry?

As you can see below, Integrated Media Technology had AU$4.13m of debt at June 2021, down from AU$6.86m a year prior. However, it also had AU$4.00m in cash, and so its net debt is AU$132.3k.

How Healthy Is Integrated Media Technology's Balance Sheet?

According to the last reported balance sheet, Integrated Media Technology had liabilities of AU$8.03m due within 12 months, and liabilities of AU$3.55m due beyond 12 months. Offsetting these obligations, it had cash of AU$4.00m as well as receivables valued at AU$1.10m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by AU$6.48m.

Since publicly traded Integrated Media Technology shares are worth a total of AU$62.9m, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. But either way, Integrated Media Technology has virtually no net debt, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Integrated Media Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Integrated Media Technology made a loss at the EBIT level, and saw its revenue drop to AU$1.3m, which is a fall of 5.6%. That's not what we would hope to see.

Caveat Emptor

Importantly, Integrated Media Technology had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost AU$5.0m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any 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 AU$21m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Integrated Media Technology has 7 warning signs (and 4 which make us uncomfortable) we think you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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.

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