We Think Polylite Taiwan (GTSM:1813) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. We can see that Polylite Taiwan Co., Ltd. (GTSM:1813) does use debt in its business. But is this debt a concern to shareholders?

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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Polylite Taiwan

What Is Polylite Taiwan's Net Debt?

As you can see below, at the end of December 2020, Polylite Taiwan had NT$287.8m of debt, up from NT$118.8m a year ago. Click the image for more detail. On the flip side, it has NT$218.6m in cash leading to net debt of about NT$69.2m.

How Strong Is Polylite Taiwan's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Polylite Taiwan had liabilities of NT$360.3m due within 12 months and liabilities of NT$28.4m due beyond that. Offsetting these obligations, it had cash of NT$218.6m as well as receivables valued at NT$109.4m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$60.7m.

Given Polylite Taiwan has a market capitalization of NT$853.4m, it's hard to believe these liabilities pose much threat. 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 you can't view debt in total isolation; since Polylite Taiwan will need earnings to service that debt. 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, Polylite Taiwan made a loss at the EBIT level, and saw its revenue drop to NT$446m, which is a fall of 11%. That's not what we would hope to see.

Caveat Emptor

While Polylite Taiwan's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at NT$41m. 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$44m of cash over the last year. So in short it's a really risky stock. 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 Polylite Taiwan is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

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. 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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