Does Taiwan Pcb Techvest (TPE:8213) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Taiwan Pcb Techvest Co., Ltd. (TPE:8213) does carry debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Taiwan Pcb Techvest

What Is Taiwan Pcb Techvest's Net Debt?

As you can see below, at the end of December 2020, Taiwan Pcb Techvest had NT$9.30b of debt, up from NT$8.74b a year ago. Click the image for more detail. However, its balance sheet shows it holds NT$10.0b in cash, so it actually has NT$738.9m net cash.

How Healthy Is Taiwan Pcb Techvest's Balance Sheet?

According to the last reported balance sheet, Taiwan Pcb Techvest had liabilities of NT$13.1b due within 12 months, and liabilities of NT$5.28b due beyond 12 months. Offsetting this, it had NT$10.0b in cash and NT$9.78b in receivables that were due within 12 months. So it actually has NT$1.41b more liquid assets than total liabilities.

This short term liquidity is a sign that Taiwan Pcb Techvest could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Taiwan Pcb Techvest boasts net cash, so it's fair to say it does not have a heavy debt load!

And we also note warmly that Taiwan Pcb Techvest grew its EBIT by 17% last year, making its debt load easier to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Taiwan Pcb Techvest'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Taiwan Pcb Techvest has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Looking at the most recent three years, Taiwan Pcb Techvest recorded free cash flow of 33% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing up

While it is always sensible to investigate a company's debt, in this case Taiwan Pcb Techvest has NT$738.9m in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 17% over the last year. So is Taiwan Pcb Techvest's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Taiwan Pcb Techvest is showing 3 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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