Is Taita Chemical Company (TWSE:1309) A Risky Investment?

Warren Buffett famously said, '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. Importantly, Taita Chemical Company, Limited (TWSE:1309) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Taita Chemical Company

How Much Debt Does Taita Chemical Company Carry?

The image below, which you can click on for greater detail, shows that at June 2024 Taita Chemical Company had debt of NT$1.13b, up from NT$490.0m in one year. But it also has NT$2.67b in cash to offset that, meaning it has NT$1.54b net cash.

A Look At Taita Chemical Company's Liabilities

According to the last reported balance sheet, Taita Chemical Company had liabilities of NT$2.76b due within 12 months, and liabilities of NT$358.8m due beyond 12 months. Offsetting this, it had NT$2.67b in cash and NT$2.17b in receivables that were due within 12 months. So it can boast NT$1.72b more liquid assets than total liabilities.

This surplus suggests that Taita Chemical Company is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Taita Chemical Company has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Taita Chemical Company's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Taita Chemical Company wasn't profitable at an EBIT level, but managed to grow its revenue by 6.9%, to NT$17b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Taita Chemical Company?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year Taita Chemical Company had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through NT$298m of cash and made a loss of NT$326m. But the saving grace is the NT$1.54b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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 Taita Chemical Company 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.

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.

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

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.