Does WUS Printed Circuit (TPE:2316) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies WUS Printed Circuit Co., Ltd. (TPE:2316) makes use of debt. But the more important question is: how much risk is that debt creating?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for WUS Printed Circuit

What Is WUS Printed Circuit's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 WUS Printed Circuit had NT$2.92b of debt, an increase on NT$2.65b, over one year. But on the other hand it also has NT$2.93b in cash, leading to a NT$9.36m net cash position.

How Strong Is WUS Printed Circuit's Balance Sheet?

According to the last reported balance sheet, WUS Printed Circuit had liabilities of NT$2.43b due within 12 months, and liabilities of NT$2.94b due beyond 12 months. Offsetting these obligations, it had cash of NT$2.93b as well as receivables valued at NT$1.43b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$1.01b.

Since publicly traded WUS Printed Circuit shares are worth a total of NT$5.16b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, WUS Printed Circuit also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since WUS Printed Circuit 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.

Over 12 months, WUS Printed Circuit made a loss at the EBIT level, and saw its revenue drop to NT$4.9b, which is a fall of 7.7%. We would much prefer see growth.

So How Risky Is WUS Printed Circuit?

While WUS Printed Circuit lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of NT$398m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. Take risks, for example - WUS Printed Circuit has 2 warning signs we think you should be aware of.

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. 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.
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