Does Polaris Group (TWSE:6550) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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, Polaris Group (TWSE:6550) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. 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.

See our latest analysis for Polaris Group

What Is Polaris Group's Net Debt?

As you can see below, at the end of September 2024, Polaris Group had NT$1.49b of debt, up from NT$688.7m a year ago. Click the image for more detail. But it also has NT$1.64b in cash to offset that, meaning it has NT$149.5m net cash.

How Healthy Is Polaris Group's Balance Sheet?

According to the last reported balance sheet, Polaris Group had liabilities of NT$422.9m due within 12 months, and liabilities of NT$1.71b due beyond 12 months. Offsetting this, it had NT$1.64b in cash and NT$29.0m in receivables that were due within 12 months. So it has liabilities totalling NT$457.5m more than its cash and near-term receivables, combined.

Having regard to Polaris Group's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the NT$32.9b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, Polaris Group boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Polaris Group'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, Polaris Group reported revenue of NT$76m, which is a gain of 2,060%, although it did not report any earnings before interest and tax. That's virtually the hole-in-one of revenue growth!

So How Risky Is Polaris Group?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Polaris Group had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through NT$3.3b of cash and made a loss of NT$2.2b. Given it only has net cash of NT$149.5m, the company may need to raise more capital if it doesn't reach break-even soon. The good news for shareholders is that Polaris Group has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Polaris Group (of which 2 are concerning!) you should know about.

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.