Does CviLux (TPE:8103) Have A Healthy Balance Sheet?

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. We can see that CviLux Corporation (TPE:8103) does use debt in its business. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for CviLux

How Much Debt Does CviLux Carry?

As you can see below, CviLux had NT$621.8m of debt, at December 2020, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has NT$1.18b in cash, leading to a NT$557.8m net cash position.

How Strong Is CviLux's Balance Sheet?

The latest balance sheet data shows that CviLux had liabilities of NT$1.32b due within a year, and liabilities of NT$581.8m falling due after that. Offsetting these obligations, it had cash of NT$1.18b as well as receivables valued at NT$1.13b due within 12 months. So it can boast NT$407.8m more liquid assets than total liabilities.

This short term liquidity is a sign that CviLux could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, CviLux boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, CviLux grew its EBIT by 36% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine CviLux'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While CviLux 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, CviLux recorded free cash flow of 29% 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 CviLux has NT$557.8m in net cash and a decent-looking balance sheet. And we liked the look of last year's 36% year-on-year EBIT growth. So we don't think CviLux's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with CviLux , and understanding them should be part of your investment process.

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.

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