Bizlink Holding (TPE:3665) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We note that Bizlink Holding Inc. (TPE:3665) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Bizlink Holding

What Is Bizlink Holding's Debt?

The chart below, which you can click on for greater detail, shows that Bizlink Holding had NT$3.34b in debt in September 2020; about the same as the year before. But it also has NT$4.25b in cash to offset that, meaning it has NT$909.7m net cash.

How Strong Is Bizlink Holding's Balance Sheet?

The latest balance sheet data shows that Bizlink Holding had liabilities of NT$4.70b due within a year, and liabilities of NT$3.80b falling due after that. Offsetting this, it had NT$4.25b in cash and NT$5.28b in receivables that were due within 12 months. So it can boast NT$1.02b more liquid assets than total liabilities.

This surplus suggests that Bizlink Holding has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Bizlink Holding boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Bizlink Holding grew its EBIT at 11% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Bizlink Holding's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Bizlink Holding has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, Bizlink Holding recorded free cash flow of 37% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing up

While it is always sensible to investigate a company's debt, in this case Bizlink Holding has NT$909.7m in net cash and a decent-looking balance sheet. And it also grew its EBIT by 11% over the last year. So we are not troubled with Bizlink Holding's debt use. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Bizlink Holding 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.

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