Taiwan Pcb Techvest (TPE:8213) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. 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 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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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

How Much Debt Does Taiwan Pcb Techvest Carry?

You can click the graphic below for the historical numbers, but it shows that Taiwan Pcb Techvest had NT$7.58b of debt in September 2020, down from NT$8.51b, one year before. However, it does have NT$8.76b in cash offsetting this, leading to net cash of NT$1.18b.

How Healthy Is Taiwan Pcb Techvest's Balance Sheet?

According to the last reported balance sheet, Taiwan Pcb Techvest had liabilities of NT$13.5b due within 12 months, and liabilities of NT$4.44b due beyond 12 months. Offsetting these obligations, it had cash of NT$8.76b as well as receivables valued at NT$9.72b due within 12 months. So it actually has NT$564.1m more liquid assets than total liabilities.

This surplus suggests that Taiwan Pcb Techvest has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Taiwan Pcb Techvest boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that Taiwan Pcb Techvest has seen its EBIT plunge 18% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Taiwan Pcb Techvest may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Taiwan Pcb Techvest's free cash flow amounted to 23% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing up

While it is always sensible to investigate a company's debt, in this case Taiwan Pcb Techvest has NT$1.18b in net cash and a decent-looking balance sheet. So we don't have any problem with Taiwan Pcb Techvest's use of debt. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Taiwan Pcb Techvest 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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