Is Jye Tai Precision Industrial (TPE:6165) Weighed On By Its Debt Load?

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. As with many other companies Jye Tai Precision Industrial Co., Ltd. (TPE:6165) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Jye Tai Precision Industrial

What Is Jye Tai Precision Industrial's Net Debt?

As you can see below, at the end of September 2020, Jye Tai Precision Industrial had NT$195.7m of debt, up from NT$9.40m a year ago. Click the image for more detail. But on the other hand it also has NT$245.8m in cash, leading to a NT$50.0m net cash position.

How Healthy Is Jye Tai Precision Industrial's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Jye Tai Precision Industrial had liabilities of NT$367.9m due within 12 months and liabilities of NT$212.6m due beyond that. Offsetting these obligations, it had cash of NT$245.8m as well as receivables valued at NT$124.6m due within 12 months. So its liabilities total NT$210.1m more than the combination of its cash and short-term receivables.

Since publicly traded Jye Tai Precision Industrial shares are worth a total of NT$2.19b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Jye Tai Precision Industrial boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Jye Tai Precision Industrial will need earnings to service that debt. 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, Jye Tai Precision Industrial reported revenue of NT$259m, which is a gain of 10,867%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Jye Tai Precision Industrial?

Although Jye Tai Precision Industrial had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of NT$7.9m. 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. One positive is that Jye Tai Precision Industrial is growing revenue apace, which makes it easier to sell a growth story and raise capital if need be. But we still think it's somewhat risky. 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. For instance, we've identified 4 warning signs for Jye Tai Precision Industrial that you should be aware of.

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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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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