United Renewable Energy (TWSE:3576) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that United Renewable Energy Co., Ltd. (TWSE:3576) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for United Renewable Energy

How Much Debt Does United Renewable Energy Carry?

As you can see below, United Renewable Energy had NT$11.1b of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have NT$8.72b in cash offsetting this, leading to net debt of about NT$2.41b.

A Look At United Renewable Energy's Liabilities

Zooming in on the latest balance sheet data, we can see that United Renewable Energy had liabilities of NT$10.2b due within 12 months and liabilities of NT$7.12b due beyond that. On the other hand, it had cash of NT$8.72b and NT$976.9m worth of receivables due within a year. So it has liabilities totalling NT$7.61b more than its cash and near-term receivables, combined.

United Renewable Energy has a market capitalization of NT$18.5b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. There's no doubt that we learn most about debt from the balance sheet. But it is United Renewable Energy'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, United Renewable Energy made a loss at the EBIT level, and saw its revenue drop to NT$9.3b, which is a fall of 50%. 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. Indeed, it lost a very considerable NT$3.4b 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of NT$4.2b. So in short it's a really risky stock. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how United Renewable Energy's profit, revenue, and operating cashflow have changed over the last few years.

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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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.