First Copper Technology (TWSE:2009) Is Carrying A Fair Bit 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 note that First Copper Technology Co., Ltd. (TWSE:2009) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for First Copper Technology

What Is First Copper Technology's Net Debt?

As you can see below, First Copper Technology had NT$1.61b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had NT$55.2m in cash, and so its net debt is NT$1.56b.

How Strong Is First Copper Technology's Balance Sheet?

We can see from the most recent balance sheet that First Copper Technology had liabilities of NT$1.77b falling due within a year, and liabilities of NT$266.9m due beyond that. On the other hand, it had cash of NT$55.2m and NT$297.6m worth of receivables due within a year. So its liabilities total NT$1.69b more than the combination of its cash and short-term receivables.

Given First Copper Technology has a market capitalization of NT$14.4b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But it is First Copper Technology's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year First Copper Technology had a loss before interest and tax, and actually shrunk its revenue by 2.7%, to NT$2.7b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months First Copper Technology produced an earnings before interest and tax (EBIT) loss. Indeed, it lost NT$70m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of NT$12m. So we do think this stock is quite risky. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how First Copper Technology's profit, revenue, and operating cashflow have changed over the last few years.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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