Does Coplus (TWSE:2254) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that Coplus Inc. (TWSE:2254) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Coplus

How Much Debt Does Coplus Carry?

You can click the graphic below for the historical numbers, but it shows that Coplus had NT$1.11b of debt in September 2024, down from NT$1.29b, one year before. However, it does have NT$150.4m in cash offsetting this, leading to net debt of about NT$959.0m.

How Strong Is Coplus' Balance Sheet?

According to the last reported balance sheet, Coplus had liabilities of NT$572.7m due within 12 months, and liabilities of NT$699.7m due beyond 12 months. Offsetting these obligations, it had cash of NT$150.4m as well as receivables valued at NT$52.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$1.07b.

While this might seem like a lot, it is not so bad since Coplus has a market capitalization of NT$4.45b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Coplus 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.

In the last year Coplus wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to NT$614m. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Coplus had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at NT$70m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through NT$142m of cash over the last year. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Coplus you should know about.

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 without delay.

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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.