Does Taiwan Name Plate (GTSM:6593) Have A Healthy Balance Sheet?

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.' 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 Taiwan Name Plate Co., Ltd. (GTSM:6593) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Taiwan Name Plate

How Much Debt Does Taiwan Name Plate Carry?

The image below, which you can click on for greater detail, shows that at September 2020 Taiwan Name Plate had debt of NT$224.4m, up from NT$127.2m in one year. However, because it has a cash reserve of NT$66.4m, its net debt is less, at about NT$158.1m.

A Look At Taiwan Name Plate's Liabilities

The latest balance sheet data shows that Taiwan Name Plate had liabilities of NT$165.1m due within a year, and liabilities of NT$199.3m falling due after that. On the other hand, it had cash of NT$66.4m and NT$67.2m worth of receivables due within a year. So its liabilities total NT$230.9m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Taiwan Name Plate is worth NT$524.4m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Taiwan Name Plate'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.

Over 12 months, Taiwan Name Plate made a loss at the EBIT level, and saw its revenue drop to NT$449m, which is a fall of 20%. That's not what we would hope to see.

Caveat Emptor

While Taiwan Name Plate's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost NT$36m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through NT$67m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Taiwan Name Plate is showing 3 warning signs in our investment analysis , and 2 of those are potentially serious...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. 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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