ImmuCell (NASDAQ:ICCC) uses its debt moderately

Howard Marks summed it up when he said: “Instead of worrying about share price volatility, the possibility of permanent loss is the risk I worry about… and every practical investor I know worries about So it seems that smart people know that debt – which usually accompanies bankruptcies – is a very important factor when assessing a company’s risk. We take note of that ImmuCell Corporation (NASDAQ:ICCC) has debt on its balance sheet. But the more important question is: How much risk does this debt pose?

When is debt a problem?

Debt helps a business until the business has difficulty paying it off, whether with new capital or free cash flow. If the company can’t meet its legal obligations to pay down debt, shareholders could end up with nothing. However, a more common (but still painful) scenario involves having to raise new equity capital at a low price, resulting in permanent shareholder dilution. However, as a replacement for dilution, debt can be an extremely good tool for companies that need capital to invest in growth at high returns. When considering how much debt a company has, you first need to consider its cash flow and debt together.

Check out our latest analysis for ImmuCell

How much is ImmuCell’s net debt?

The image below, which you can click on for more details, shows that ImmuCell had debt of US$10.9m at the end of September 2024, a reduction from US$12.3m over a year. However, the company also had US$3.81m in cash, leaving its net debt at US$7.09m.

How strong is ImmuCell’s balance sheet?

The most recent balance sheet shows that ImmuCell had liabilities of US$4.47m within a year and liabilities of US$13.6m beyond that. On the other hand, it had cash of US$3.81m and US$2.34m worth of receivables due within a year. So its liabilities total US$11.9m more than its cash and short-term receivables combined.

ImmuCell has a market cap of $36.7 million, so it could very likely raise cash to improve its balance sheet if needed. Nevertheless, it is worth taking a close look at your ability to repay your debts. When analyzing debt levels, the balance sheet is the obvious place to start. But you can’t look at debt in complete isolation; as ImmuCell will need revenue to service this debt. So if you’re interested in discovering more about the company’s earnings, it might be worth checking out this graph of its long-term earnings trend.

Last year, ImmuCell was not profitable at the EBIT level, but managed to increase its revenue by 46% to $24 million. With a bit of luck, the company will be able to grow into profitability.

Precautionary measure

Despite the sales growth, ImmuCell still recorded a loss in earnings before interest and taxes (EBIT) last year. Specifically, the EBIT loss amounted to $2.7 million. Considering the company should take on so much debt on top of the liabilities mentioned above, we’re not very confident. Frankly, we think the balance sheet is far from fit, although it could be improved over time. However, it doesn’t help that the company burned through $713,000 in cash last year. So suffice it to say that we consider the stock to be risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – quite the opposite. For example, we identified 3 warning signs for ImmuCell (1 is a bit unpleasant) you should note.

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 immediately.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.