Does Lingsen Precision Industries (TWSE:2369) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 can see that Lingsen Precision Industries, Ltd. (TWSE:2369) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Lingsen Precision Industries's Net Debt?

As you can see below, Lingsen Precision Industries had NT$957.3m of debt at December 2024, down from NT$1.21b a year prior. But it also has NT$1.87b in cash to offset that, meaning it has NT$909.2m net cash.

How Strong Is Lingsen Precision Industries' Balance Sheet?

The latest balance sheet data shows that Lingsen Precision Industries had liabilities of NT$1.41b due within a year, and liabilities of NT$613.1m falling due after that. Offsetting these obligations, it had cash of NT$1.87b as well as receivables valued at NT$1.24b due within 12 months. So it actually has NT$1.08b more liquid assets than total liabilities.

It's good to see that Lingsen Precision Industries has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Lingsen Precision Industries 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 Lingsen Precision Industries'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.

Check out our latest analysis for Lingsen Precision Industries

Over 12 months, Lingsen Precision Industries made a loss at the EBIT level, and saw its revenue drop to NT$5.4b, which is a fall of 3.2%. We would much prefer see growth.

So How Risky Is Lingsen Precision Industries?

Although Lingsen Precision Industries had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of NT$402m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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 example - Lingsen Precision Industries has 1 warning sign we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.