Is SanDi PropertiesLtd (TWSE:1438) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, SanDi Properties Co.,Ltd. (TWSE:1438) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SanDi PropertiesLtd

What Is SanDi PropertiesLtd's Debt?

As you can see below, at the end of September 2024, SanDi PropertiesLtd had NT$7.19b of debt, up from NT$6.21b a year ago. Click the image for more detail. And it doesn't have much cash, so its net debt is about the same.

A Look At SanDi PropertiesLtd's Liabilities

According to the last reported balance sheet, SanDi PropertiesLtd had liabilities of NT$4.96b due within 12 months, and liabilities of NT$4.21b due beyond 12 months. Offsetting these obligations, it had cash of NT$66.9m as well as receivables valued at NT$786.6m due within 12 months. So it has liabilities totalling NT$8.32b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the NT$4.74b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, SanDi PropertiesLtd would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is SanDi PropertiesLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year SanDi PropertiesLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 169%, to NT$1.2b. So its pretty obvious shareholders are hoping for more growth!

Caveat Emptor

Even though SanDi PropertiesLtd managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. To be specific the EBIT loss came in at NT$22m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through NT$162m in negative free cash flow over the last year. So suffice it to say we consider the stock to be risky. 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 instance, we've identified 3 warning signs for SanDi PropertiesLtd (2 make us uncomfortable) you should be aware of.

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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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.