United Renewable Energy (TPE:3576) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that United Renewable Energy Co., Ltd. (TPE:3576) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 United Renewable Energy

What Is United Renewable Energy's Net Debt?

You can click the graphic below for the historical numbers, but it shows that United Renewable Energy had NT$13.0b of debt in December 2020, down from NT$20.9b, one year before. On the flip side, it has NT$6.18b in cash leading to net debt of about NT$6.83b.

How Strong Is United Renewable Energy's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that United Renewable Energy had liabilities of NT$11.2b due within 12 months and liabilities of NT$6.19b due beyond that. On the other hand, it had cash of NT$6.18b and NT$3.42b worth of receivables due within a year. So its liabilities total NT$7.84b more than the combination of its cash and short-term receivables.

Given United Renewable Energy has a market capitalization of NT$39.5b, 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine United Renewable Energy's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, United Renewable Energy made a loss at the EBIT level, and saw its revenue drop to NT$13b, which is a fall of 31%. To be frank that doesn't bode well.

Caveat Emptor

While United Renewable Energy's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping NT$4.6b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of NT$6.1b into a profit. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should learn about the 2 warning signs we've spotted with United Renewable Energy (including 1 which is significant) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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