Is Pili International MultimediaLtd (GTSM:8450) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, Pili International Multimedia Co.,Ltd. (GTSM:8450) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Pili International MultimediaLtd

What Is Pili International MultimediaLtd's Debt?

As you can see below, at the end of September 2020, Pili International MultimediaLtd had NT$161.5m of debt, up from NT$27.5m a year ago. Click the image for more detail. But on the other hand it also has NT$1.07b in cash, leading to a NT$911.4m net cash position.

A Look At Pili International MultimediaLtd's Liabilities

According to the last reported balance sheet, Pili International MultimediaLtd had liabilities of NT$291.7m due within 12 months, and liabilities of NT$95.6m due beyond 12 months. On the other hand, it had cash of NT$1.07b and NT$93.5m worth of receivables due within a year. So it can boast NT$779.1m more liquid assets than total liabilities.

This excess liquidity is a great indication that Pili International MultimediaLtd's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Pili International MultimediaLtd boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Pili International MultimediaLtd'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 Pili International MultimediaLtd had a loss before interest and tax, and actually shrunk its revenue by 21%, to NT$488m. That makes us nervous, to say the least.

So How Risky Is Pili International MultimediaLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year Pili International MultimediaLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through NT$89m of cash and made a loss of NT$89m. With only NT$911.4m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 3 warning signs for Pili International MultimediaLtd (1 is concerning) you should be aware of.

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. 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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