VIA Technologies (TPE:2388) Is Carrying A Fair Bit Of Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We note that VIA Technologies, Inc. (TPE:2388) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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 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.

Check out our latest analysis for VIA Technologies

How Much Debt Does VIA Technologies Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 VIA Technologies had NT$3.05b of debt, an increase on NT$2.82b, over one year. However, it does have NT$2.44b in cash offsetting this, leading to net debt of about NT$609.7m.

How Healthy Is VIA Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that VIA Technologies had liabilities of NT$3.11b due within 12 months and liabilities of NT$2.07b due beyond that. On the other hand, it had cash of NT$2.44b and NT$523.3m worth of receivables due within a year. So its liabilities total NT$2.22b more than the combination of its cash and short-term receivables.

Given VIA Technologies has a market capitalization of NT$24.7b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. When analysing debt levels, the balance sheet is the obvious place to start. But it is VIA Technologies'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.

Over 12 months, VIA Technologies reported revenue of NT$6.2b, which is a gain of 12%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months VIA Technologies produced an earnings before interest and tax (EBIT) loss. Indeed, it lost NT$340m 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. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled NT$553m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. 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 1 warning sign for VIA Technologies that you should be aware of before investing here.

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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