Does Ledtech Electronics (TPE:6164) Have A Healthy Balance Sheet?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Ledtech Electronics Corp. (TPE:6164) makes use of debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Ledtech Electronics

What Is Ledtech Electronics's Debt?

As you can see below, Ledtech Electronics had NT$303.6m of debt at September 2020, down from NT$424.3m a year prior. But on the other hand it also has NT$534.2m in cash, leading to a NT$230.6m net cash position.

How Strong Is Ledtech Electronics' Balance Sheet?

The latest balance sheet data shows that Ledtech Electronics had liabilities of NT$477.7m due within a year, and liabilities of NT$137.6m falling due after that. On the other hand, it had cash of NT$534.2m and NT$229.3m worth of receivables due within a year. So it can boast NT$148.2m more liquid assets than total liabilities.

This short term liquidity is a sign that Ledtech Electronics could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Ledtech Electronics 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 you can't view debt in total isolation; since Ledtech Electronics 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.

In the last year Ledtech Electronics had a loss before interest and tax, and actually shrunk its revenue by 21%, to NT$776m. To be frank that doesn't bode well.

So How Risky Is Ledtech Electronics?

Although Ledtech Electronics had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of NT$173m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Ledtech Electronics (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

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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