Epileds Technologies (TWSE:4956) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Epileds Technologies, Inc. (TWSE:4956) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Epileds Technologies

How Much Debt Does Epileds Technologies Carry?

The chart below, which you can click on for greater detail, shows that Epileds Technologies had NT$845.9m in debt in March 2024; about the same as the year before. However, because it has a cash reserve of NT$339.8m, its net debt is less, at about NT$506.1m.

How Strong Is Epileds Technologies' Balance Sheet?

According to the last reported balance sheet, Epileds Technologies had liabilities of NT$574.0m due within 12 months, and liabilities of NT$542.2m due beyond 12 months. On the other hand, it had cash of NT$339.8m and NT$597.3m worth of receivables due within a year. So it has liabilities totalling NT$179.1m more than its cash and near-term receivables, combined.

Since publicly traded Epileds Technologies shares are worth a total of NT$2.38b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. 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 Epileds 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.

In the last year Epileds Technologies had a loss before interest and tax, and actually shrunk its revenue by 5.3%, to NT$1.1b. We would much prefer see growth.

Caveat Emptor

Importantly, Epileds Technologies had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost NT$176m at the EBIT level. 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. Another cause for caution is that is bled NT$56m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Epileds Technologies is showing 2 warning signs 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.