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.' 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 can see that CyberTAN Technology, Inc. (TPE:3062) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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

What Is CyberTAN Technology's Net Debt?

As you can see below, at the end of December 2020, CyberTAN Technology had NT$688.4m of debt, up from NT$392.6m a year ago. Click the image for more detail. But it also has NT$3.29b in cash to offset that, meaning it has NT$2.60b net cash.

How Healthy Is CyberTAN Technology's Balance Sheet?

According to the last reported balance sheet, CyberTAN Technology had liabilities of NT$2.01b due within 12 months, and liabilities of NT$616.4m due beyond 12 months. Offsetting these obligations, it had cash of NT$3.29b as well as receivables valued at NT$1.37b due within 12 months. So it actually has NT$2.03b more liquid assets than total liabilities.

This surplus strongly suggests that CyberTAN Technology has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that CyberTAN Technology has more cash than debt is arguably a good indication that it can manage its debt safely. 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 when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year CyberTAN Technology had a loss before interest and tax, and actually shrunk its revenue by 15%, to NT$4.8b. We would much prefer see growth.

So How Risky Is CyberTAN Technology?

Although CyberTAN Technology had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of NT$24m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. To that end, you should learn about the 2 warning signs we've spotted with CyberTAN Technology (including 1 which makes us a bit uncomfortable) .

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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