SciVision Biotech (TWSE:1786) Seems To Use Debt Rather Sparingly

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.' 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 can see that SciVision Biotech Inc. (TWSE:1786) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for SciVision Biotech

How Much Debt Does SciVision Biotech Carry?

The image below, which you can click on for greater detail, shows that SciVision Biotech had debt of NT$299.3m at the end of March 2024, a reduction from NT$353.0m over a year. However, it does have NT$819.0m in cash offsetting this, leading to net cash of NT$519.7m.

How Healthy Is SciVision Biotech's Balance Sheet?

According to the last reported balance sheet, SciVision Biotech had liabilities of NT$351.8m due within 12 months, and liabilities of NT$364.8m due beyond 12 months. On the other hand, it had cash of NT$819.0m and NT$119.0m worth of receivables due within a year. So it actually has NT$221.4m more liquid assets than total liabilities.

This surplus suggests that SciVision Biotech has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that SciVision Biotech has more cash than debt is arguably a good indication that it can manage its debt safely.

Another good sign is that SciVision Biotech has been able to increase its EBIT by 29% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if SciVision Biotech can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. SciVision Biotech 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. Happily for any shareholders, SciVision Biotech actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case SciVision Biotech has NT$519.7m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of NT$291m, being 118% of its EBIT. So we don't think SciVision Biotech's use of debt is 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 SciVision Biotech is showing 2 warning signs in our investment analysis , you should know about...

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. 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.