We Think United Renewable Energy (TWSE:3576) Has A Fair Chunk Of Debt

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.' 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. Importantly, United Renewable Energy Co., Ltd. (TWSE:3576) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for United Renewable Energy

What Is United Renewable Energy's Debt?

As you can see below, at the end of September 2024, United Renewable Energy had NT$12.2b of debt, up from NT$10.1b a year ago. Click the image for more detail. On the flip side, it has NT$9.43b in cash leading to net debt of about NT$2.81b.

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$8.35b due beyond that. Offsetting this, it had NT$9.43b in cash and NT$1.10b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$7.96b.

United Renewable Energy has a market capitalization of NT$16.2b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since United Renewable Energy will need earnings to service that debt. 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.

Over 12 months, United Renewable Energy made a loss at the EBIT level, and saw its revenue drop to NT$6.4b, which is a fall of 59%. That makes us nervous, to say the least.

Caveat Emptor

Not only did United Renewable Energy's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping NT$2.3b. 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of NT$4.1b into a profit. So to be blunt we do think it is risky. For riskier companies like United Renewable Energy I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.