Does Glotech Industrial (GTSM:5475) 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. Importantly, Glotech Industrial Corp. (GTSM:5475) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Glotech Industrial

What Is Glotech Industrial's Debt?

The image below, which you can click on for greater detail, shows that Glotech Industrial had debt of NT$803.2m at the end of September 2020, a reduction from NT$1.56b over a year. However, it does have NT$151.8m in cash offsetting this, leading to net debt of about NT$651.4m.

How Healthy Is Glotech Industrial's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Glotech Industrial had liabilities of NT$1.08b due within 12 months and liabilities of NT$98.6m due beyond that. Offsetting this, it had NT$151.8m in cash and NT$353.6m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$670.1m.

This deficit is considerable relative to its market capitalization of NT$722.8m, so it does suggest shareholders should keep an eye on Glotech Industrial's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. But it is Glotech 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 Glotech Industrial had a loss before interest and tax, and actually shrunk its revenue by 30%, to NT$831m. That makes us nervous, to say the least.

Caveat Emptor

While Glotech Industrial'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$323m 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. However, it doesn't help that it burned through NT$286m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Glotech Industrial you should be aware of, and 1 of them shouldn't be ignored.

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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