Is Taimide Tech (TWSE:3645) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, Taimide Tech. Inc. (TWSE:3645) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Taimide Tech

How Much Debt Does Taimide Tech Carry?

As you can see below, Taimide Tech had NT$1.63b of debt at September 2023, down from NT$1.70b a year prior. However, it does have NT$326.4m in cash offsetting this, leading to net debt of about NT$1.31b.

A Look At Taimide Tech's Liabilities

Zooming in on the latest balance sheet data, we can see that Taimide Tech had liabilities of NT$1.26b due within 12 months and liabilities of NT$839.5m due beyond that. On the other hand, it had cash of NT$326.4m and NT$555.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$1.22b.

While this might seem like a lot, it is not so bad since Taimide Tech has a market capitalization of NT$6.06b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Taimide Tech's earnings that will influence how the balance sheet holds up in the future. 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, Taimide Tech made a loss at the EBIT level, and saw its revenue drop to NT$1.6b, which is a fall of 27%. To be frank that doesn't bode well.

Caveat Emptor

Not only did Taimide Tech's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at NT$104m. 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. We would feel better if it turned its trailing twelve month loss of NT$96m into a profit. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for Taimide Tech that you should be aware of.

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.

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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.