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. We can see that Intertech S.A. Inter. Technologies (ATH:INTET) does use debt in its business. But the more important question is: how much risk is that debt creating?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, 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. The first step when considering a company's debt levels is to consider its cash and debt together.
See our latest analysis for Intertech Inter. Technologies
What Is Intertech Inter. Technologies's Net Debt?
You can click the graphic below for the historical numbers, but it shows that Intertech Inter. Technologies had €3.23m of debt in December 2018, down from €4.55m, one year before. However, it also had €138.0k in cash, and so its net debt is €3.09m.
How Strong Is Intertech Inter. Technologies's Balance Sheet?
We can see from the most recent balance sheet that Intertech Inter. Technologies had liabilities of €6.93m falling due within a year, and liabilities of €1.33m due beyond that. Offsetting these obligations, it had cash of €138.0k as well as receivables valued at €8.26m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.
This short term liquidity is a sign that Intertech Inter. Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Intertech Inter. Technologies's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.