Is Powertech Industrial (TWSE:3296) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Powertech Industrial Co., Ltd. (TWSE:3296) does carry debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Powertech Industrial

How Much Debt Does Powertech Industrial Carry?

As you can see below, Powertech Industrial had NT$260.0m of debt at June 2024, down from NT$280.0m a year prior. However, its balance sheet shows it holds NT$666.0m in cash, so it actually has NT$406.0m net cash.

How Healthy Is Powertech Industrial's Balance Sheet?

We can see from the most recent balance sheet that Powertech Industrial had liabilities of NT$875.9m falling due within a year, and liabilities of NT$135.8m due beyond that. Offsetting these obligations, it had cash of NT$666.0m as well as receivables valued at NT$436.9m due within 12 months. So it actually has NT$91.2m more liquid assets than total liabilities.

This surplus suggests that Powertech Industrial has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Powertech Industrial boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Powertech Industrial'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.

Over 12 months, Powertech Industrial made a loss at the EBIT level, and saw its revenue drop to NT$1.6b, which is a fall of 20%. To be frank that doesn't bode well.

So How Risky Is Powertech Industrial?

While Powertech Industrial lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of NT$2.9m. So taking that on face value, and considering the cash, we don't think its very 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. 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 4 warning signs for Powertech Industrial (of which 1 is a bit unpleasant!) 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.