Here's Why Ying Han Technology (TWSE:4562) Can Afford Some Debt

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. We note that Ying Han Technology Co., Ltd. (TWSE:4562) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Ying Han Technology

What Is Ying Han Technology's Debt?

The chart below, which you can click on for greater detail, shows that Ying Han Technology had NT$879.3m in debt in March 2024; about the same as the year before. However, it does have NT$243.2m in cash offsetting this, leading to net debt of about NT$636.1m.

How Strong Is Ying Han Technology's Balance Sheet?

According to the last reported balance sheet, Ying Han Technology had liabilities of NT$764.2m due within 12 months, and liabilities of NT$423.9m due beyond 12 months. Offsetting this, it had NT$243.2m in cash and NT$268.7m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$676.3m.

Of course, Ying Han Technology has a market capitalization of NT$5.67b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Ying Han Technology's earnings that will influence how the balance sheet holds up in the future. 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 Ying Han Technology had a loss before interest and tax, and actually shrunk its revenue by 7.9%, to NT$722m. We would much prefer see growth.

Caveat Emptor

Importantly, Ying Han Technology had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost NT$86m at the EBIT level. 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$26m of cash over the last year. So suffice it to say we do 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. Be aware that Ying Han Technology is showing 3 warning signs in our investment analysis , you should know about...

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.

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