Is AMICCOM Electronics (GTSM:5272) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. As with many other companies AMICCOM Electronics Corporation (GTSM:5272) makes use of debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for AMICCOM Electronics

What Is AMICCOM Electronics's Net Debt?

You can click the graphic below for the historical numbers, but it shows that AMICCOM Electronics had NT$123.1m of debt in September 2020, down from NT$130.6m, one year before. But on the other hand it also has NT$150.2m in cash, leading to a NT$27.1m net cash position.

How Healthy Is AMICCOM Electronics' Balance Sheet?

According to the last reported balance sheet, AMICCOM Electronics had liabilities of NT$53.4m due within 12 months, and liabilities of NT$134.7m due beyond 12 months. Offsetting this, it had NT$150.2m in cash and NT$59.5m in receivables that were due within 12 months. So it can boast NT$21.6m more liquid assets than total liabilities.

Having regard to AMICCOM Electronics' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the NT$1.43b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, AMICCOM Electronics 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 you can't view debt in total isolation; since AMICCOM Electronics will need earnings to service that debt. 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, AMICCOM Electronics made a loss at the EBIT level, and saw its revenue drop to NT$457m, which is a fall of 5.9%. That's not what we would hope to see.

So How Risky Is AMICCOM Electronics?

Although AMICCOM Electronics had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of NT$52m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for AMICCOM Electronics (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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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