Is Tainergy Tech (TWSE:4934) 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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Tainergy Tech Co., Ltd. (TWSE:4934) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Tainergy Tech

What Is Tainergy Tech's Net Debt?

As you can see below, at the end of September 2024, Tainergy Tech had NT$332.4m of debt, up from NT$155.2m a year ago. Click the image for more detail. However, its balance sheet shows it holds NT$754.4m in cash, so it actually has NT$422.0m net cash.

How Healthy Is Tainergy Tech's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tainergy Tech had liabilities of NT$690.5m due within 12 months and liabilities of NT$197.4m due beyond that. Offsetting these obligations, it had cash of NT$754.4m as well as receivables valued at NT$448.0m due within 12 months. So it can boast NT$314.5m more liquid assets than total liabilities.

This surplus suggests that Tainergy Tech has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Tainergy Tech boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Tainergy Tech 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.

In the last year Tainergy Tech had a loss before interest and tax, and actually shrunk its revenue by 82%, to NT$497m. To be frank that doesn't bode well.

So How Risky Is Tainergy Tech?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Tainergy Tech lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of NT$543m and booked a NT$420m accounting loss. But at least it has NT$422.0m on the balance sheet to spend on growth, near-term. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. 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. Be aware that Tainergy Tech is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.