Taiyo TechnolexLtd (TSE:6663) Has Debt But No Earnings; Should You Worry?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Taiyo Technolex Co.,Ltd. (TSE:6663) does carry debt. But the more important question is: how much risk is that debt creating?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

What Is Taiyo TechnolexLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Taiyo TechnolexLtd had JP¥692.0m of debt in December 2024, down from JP¥753.0m, one year before. But on the other hand it also has JP¥1.49b in cash, leading to a JP¥797.0m net cash position.

How Strong Is Taiyo TechnolexLtd's Balance Sheet?

According to the last reported balance sheet, Taiyo TechnolexLtd had liabilities of JP¥851.0m due within 12 months, and liabilities of JP¥1.16b due beyond 12 months. Offsetting this, it had JP¥1.49b in cash and JP¥560.0m in receivables that were 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 Taiyo TechnolexLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Taiyo TechnolexLtd has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Taiyo TechnolexLtd will need earnings to service that debt. 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.

Check out our latest analysis for Taiyo TechnolexLtd

In the last year Taiyo TechnolexLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 3.2%, to JP¥3.5b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Taiyo TechnolexLtd?

Although Taiyo TechnolexLtd had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of JP¥212m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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, we've discovered 1 warning sign for Taiyo TechnolexLtd that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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.