These 4 Measures Indicate That International CSRC Investment Holdings (TPE:2104) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, International CSRC Investment Holdings Co., Ltd. (TPE:2104) does carry debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for International CSRC Investment Holdings

How Much Debt Does International CSRC Investment Holdings Carry?

You can click the graphic below for the historical numbers, but it shows that International CSRC Investment Holdings had NT$10.3b of debt in September 2020, down from NT$11.9b, one year before. However, its balance sheet shows it holds NT$17.9b in cash, so it actually has NT$7.61b net cash.

A Look At International CSRC Investment Holdings's Liabilities

Zooming in on the latest balance sheet data, we can see that International CSRC Investment Holdings had liabilities of NT$11.1b due within 12 months and liabilities of NT$5.66b due beyond that. Offsetting these obligations, it had cash of NT$17.9b as well as receivables valued at NT$3.79b due within 12 months. So it can boast NT$4.90b more liquid assets than total liabilities.

It's good to see that International CSRC Investment Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, International CSRC Investment Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

In fact International CSRC Investment Holdings's saving grace is its low debt levels, because its EBIT has tanked 90% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if International CSRC Investment Holdings 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, a company can only pay off debt with cold hard cash, not accounting profits. While International CSRC Investment Holdings has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, International CSRC Investment Holdings saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that International CSRC Investment Holdings has net cash of NT$7.61b, as well as more liquid assets than liabilities. So we are not troubled with International CSRC Investment Holdings's debt use. Even though International CSRC Investment Holdings lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

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.

If you’re looking to trade International CSRC Investment Holdings, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.