Is VIA Technologies (TWSE:2388) A Risky Investment?

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. As with many other companies VIA Technologies, Inc. (TWSE:2388) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for VIA Technologies

What Is VIA Technologies's Net Debt?

As you can see below, VIA Technologies had NT$2.78b of debt at September 2024, down from NT$3.11b a year prior. But on the other hand it also has NT$18.6b in cash, leading to a NT$15.8b net cash position.

A Look At VIA Technologies' Liabilities

The latest balance sheet data shows that VIA Technologies had liabilities of NT$12.3b due within a year, and liabilities of NT$2.53b falling due after that. On the other hand, it had cash of NT$18.6b and NT$562.8m worth of receivables due within a year. So it actually has NT$4.31b more liquid assets than total liabilities.

This short term liquidity is a sign that VIA Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that VIA Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

Although VIA Technologies made a loss at the EBIT level, last year, it was also good to see that it generated NT$418m in EBIT over the last twelve months. 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 VIA Technologies will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While VIA Technologies has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last year, VIA Technologies actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that VIA Technologies has net cash of NT$15.8b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of NT$3.8b, being 899% of its EBIT. So is VIA Technologies's debt a risk? It doesn't seem so to us. 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 instance, we've identified 3 warning signs for VIA Technologies (1 is concerning) you should be aware of.

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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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.