Health Check: How Prudently Does Identiv (NASDAQ:INVE) Use Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, Identiv, Inc. (NASDAQ:INVE) does carry debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Identiv

How Much Debt Does Identiv Carry?

The chart below, which you can click on for greater detail, shows that Identiv had US$9.89m in debt in March 2024; about the same as the year before. But it also has US$21.6m in cash to offset that, meaning it has US$11.7m net cash.

How Strong Is Identiv's Balance Sheet?

The latest balance sheet data shows that Identiv had liabilities of US$27.3m due within a year, and liabilities of US$4.32m falling due after that. Offsetting this, it had US$21.6m in cash and US$17.8m in receivables that were due within 12 months. So it actually has US$7.81m more liquid assets than total liabilities.

This short term liquidity is a sign that Identiv could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Identiv boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Identiv'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 Identiv's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

So How Risky Is Identiv?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Identiv had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$3.1m of cash and made a loss of US$8.6m. But the saving grace is the US$11.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Identiv that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.