Does ImmuCell (NASDAQ:ICCC) Have A Healthy Balance Sheet?
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies ImmuCell Corporation (NASDAQ:ICCC) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. 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 Debt?
You can click the graphic below for the historical numbers, but it shows that as of March 2022 ImmuCell had US$10.9m of debt, an increase on US$9.31m, over one year. But on the other hand it also has US$11.8m in cash, leading to a US$892.1k net cash position.
How Strong Is ImmuCell's Balance Sheet?
The latest balance sheet data shows that ImmuCell had liabilities of US$2.35m due within a year, and liabilities of US$11.0m falling due after that. Offsetting this, it had US$11.8m in cash and US$2.66m in receivables that were due within 12 months. So it can boast US$1.15m more liquid assets than total liabilities.
This state of affairs indicates that ImmuCell's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$68.9m company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that ImmuCell has more cash than debt is arguably a good indication that it can manage its debt safely.
Notably, ImmuCell made a loss at the EBIT level, last year, but improved that to positive EBIT of US$1.4m in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is ImmuCell's earnings that will influence how the balance sheet holds up in the future. 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. ImmuCell 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 last year, ImmuCell saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that ImmuCell has net cash of US$892.1k, as well as more liquid assets than liabilities. So we don't have any problem with ImmuCell's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that ImmuCell is showing 1 warning sign in our investment analysis , you should know about...
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.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
