WUS Printed Circuit (TPE:2316) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that WUS Printed Circuit Co., Ltd. (TPE:2316) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for WUS Printed Circuit

How Much Debt Does WUS Printed Circuit Carry?

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. However, it does have NT$2.93b in cash offsetting this, leading to net cash of NT$9.36m.

How Healthy Is WUS Printed Circuit's Balance Sheet?

The latest balance sheet data shows that WUS Printed Circuit had liabilities of NT$2.43b due within a year, and liabilities of NT$2.94b falling due after that. 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 total NT$1.01b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because WUS Printed Circuit is worth NT$4.98b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, WUS Printed Circuit boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is WUS Printed Circuit'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.

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%. That's not what we would hope to see.

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 taking that on face value, and considering the cash, we don't think its very risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 WUS Printed Circuit is showing 2 warning signs in our investment analysis , you should know about...

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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