Does AmTRAN TechnologyLtd (TPE:2489) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that AmTRAN Technology Co.,Ltd (TPE:2489) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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 AmTRAN TechnologyLtd

What Is AmTRAN TechnologyLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2020 AmTRAN TechnologyLtd had debt of NT$801.2m, up from NT$152.5m in one year. However, its balance sheet shows it holds NT$7.22b in cash, so it actually has NT$6.42b net cash.

How Healthy Is AmTRAN TechnologyLtd's Balance Sheet?

We can see from the most recent balance sheet that AmTRAN TechnologyLtd had liabilities of NT$5.83b falling due within a year, and liabilities of NT$457.7m due beyond that. On the other hand, it had cash of NT$7.22b and NT$3.99b worth of receivables due within a year. So it actually has NT$4.92b more liquid assets than total liabilities.

This surplus strongly suggests that AmTRAN TechnologyLtd has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that AmTRAN TechnologyLtd has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if AmTRAN TechnologyLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, AmTRAN TechnologyLtd made a loss at the EBIT level, and saw its revenue drop to NT$16b, which is a fall of 3.6%. That's not what we would hope to see.

So How Risky Is AmTRAN TechnologyLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months AmTRAN TechnologyLtd lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through NT$333m of cash and made a loss of NT$39m. Given it only has net cash of NT$6.42b, the company may need to raise more capital if it doesn't reach break-even soon. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. For riskier companies like AmTRAN TechnologyLtd I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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