Is WUS Printed Circuit (TWSE:2316) Using Debt Sensibly?

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. We can see that WUS Printed Circuit Co., Ltd. (TWSE:2316) does use debt in its business. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for WUS Printed Circuit

What Is WUS Printed Circuit's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 WUS Printed Circuit had NT$3.33b of debt, an increase on NT$3.11b, over one year. However, it does have NT$3.33b in cash offsetting this, leading to net cash of NT$6.08m.

How Strong Is WUS Printed Circuit's Balance Sheet?

We can see from the most recent balance sheet that WUS Printed Circuit had liabilities of NT$2.99b falling due within a year, and liabilities of NT$2.38b due beyond that. On the other hand, it had cash of NT$3.33b and NT$931.2m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$1.11b.

Since publicly traded WUS Printed Circuit shares are worth a total of NT$7.93b, 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, WUS Printed Circuit 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 WUS Printed Circuit 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.

In the last year WUS Printed Circuit had a loss before interest and tax, and actually shrunk its revenue by 22%, to NT$3.5b. That makes us nervous, to say the least.

So How Risky Is WUS Printed Circuit?

Although WUS Printed Circuit had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of NT$1.1b. 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. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for WUS Printed Circuit you should know about.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com