Sunjuice Holdings (TPE:1256) Has A Rock Solid 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.' 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, Sunjuice Holdings Co., Limited (TPE:1256) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Sunjuice Holdings

How Much Debt Does Sunjuice Holdings Carry?

As you can see below, Sunjuice Holdings had NT$86.3m of debt at December 2020, down from NT$286.0m a year prior. However, it does have NT$897.6m in cash offsetting this, leading to net cash of NT$811.3m.

How Strong Is Sunjuice Holdings' Balance Sheet?

We can see from the most recent balance sheet that Sunjuice Holdings had liabilities of NT$701.7m falling due within a year, and liabilities of NT$185.0m due beyond that. Offsetting this, it had NT$897.6m in cash and NT$308.6m in receivables that were due within 12 months. So it can boast NT$319.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Sunjuice Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Sunjuice Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

In addition to that, we're happy to report that Sunjuice Holdings has boosted its EBIT by 32%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Sunjuice Holdings will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Sunjuice Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Sunjuice Holdings recorded free cash flow of 33% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Sunjuice Holdings has net cash of NT$811.3m, as well as more liquid assets than liabilities. And we liked the look of last year's 32% year-on-year EBIT growth. So is Sunjuice Holdings's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Sunjuice Holdings that you should be aware of.

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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