CyberTAN Technology (TPE:3062) Has Debt But No Earnings; Should You Worry?

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 CyberTAN Technology, Inc. (TPE:3062) makes use of debt. But should shareholders be worried about its use of debt?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CyberTAN Technology

How Much Debt Does CyberTAN Technology Carry?

The image below, which you can click on for greater detail, shows that at September 2020 CyberTAN Technology had debt of NT$706.2m, up from none in one year. But it also has NT$3.29b in cash to offset that, meaning it has NT$2.59b net cash.

How Strong Is CyberTAN Technology's Balance Sheet?

According to the last reported balance sheet, CyberTAN Technology had liabilities of NT$2.11b due within 12 months, and liabilities of NT$624.0m due beyond 12 months. On the other hand, it had cash of NT$3.29b and NT$1.28b worth of receivables due within a year. So it can boast NT$1.83b more liquid assets than total liabilities.

This luscious liquidity implies that CyberTAN Technology's balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet is as strong as beautiful a rare rhino. Succinctly put, CyberTAN Technology 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 CyberTAN Technology's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, CyberTAN Technology made a loss at the EBIT level, and saw its revenue drop to NT$4.8b, which is a fall of 26%. To be frank that doesn't bode well.

So How Risky Is CyberTAN Technology?

While CyberTAN Technology lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow NT$414m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with CyberTAN Technology .

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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