Does Skardin Industrial (GTSM:3466) Have A Healthy Balance Sheet?

Warren Buffett famously said, '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 Skardin Industrial Corporation (GTSM:3466) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Skardin Industrial

How Much Debt Does Skardin Industrial Carry?

You can click the graphic below for the historical numbers, but it shows that Skardin Industrial had NT$149.5m of debt in September 2020, down from NT$213.9m, one year before. However, its balance sheet shows it holds NT$565.7m in cash, so it actually has NT$416.2m net cash.

How Strong Is Skardin Industrial's Balance Sheet?

According to the last reported balance sheet, Skardin Industrial had liabilities of NT$442.7m due within 12 months, and liabilities of NT$13.7m due beyond 12 months. On the other hand, it had cash of NT$565.7m and NT$281.6m worth of receivables due within a year. So it can boast NT$390.9m more liquid assets than total liabilities.

This surplus liquidity suggests that Skardin Industrial's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Skardin Industrial boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Skardin Industrial'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.

In the last year Skardin Industrial had a loss before interest and tax, and actually shrunk its revenue by 50%, to NT$1.2b. To be frank that doesn't bode well.

So How Risky Is Skardin Industrial?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months Skardin Industrial lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through NT$89m of cash and made a loss of NT$133m. With only NT$416.2m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Case in point: We've spotted 1 warning sign for Skardin Industrial you should be aware of.

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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