Does Universal Microelectronics (TWSE:2413) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Universal Microelectronics Co., Ltd. (TWSE:2413) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Universal Microelectronics

How Much Debt Does Universal Microelectronics Carry?

You can click the graphic below for the historical numbers, but it shows that Universal Microelectronics had NT$1.70b of debt in June 2024, down from NT$1.81b, one year before. However, because it has a cash reserve of NT$835.8m, its net debt is less, at about NT$868.5m.

A Look At Universal Microelectronics' Liabilities

The latest balance sheet data shows that Universal Microelectronics had liabilities of NT$1.29b due within a year, and liabilities of NT$1.29b falling due after that. Offsetting these obligations, it had cash of NT$835.8m as well as receivables valued at NT$490.3m due within 12 months. So its liabilities total NT$1.26b more than the combination of its cash and short-term receivables.

Universal Microelectronics has a market capitalization of NT$3.08b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is Universal Microelectronics'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.

In the last year Universal Microelectronics had a loss before interest and tax, and actually shrunk its revenue by 27%, to NT$3.7b. That makes us nervous, to say the least.

Caveat Emptor

While Universal Microelectronics's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost NT$72m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Surprisingly, we note that it actually reported positive free cash flow of NT$381m and a profit of NT$20m. So one might argue that there's still a chance it can get things on the right track. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Universal Microelectronics that you should be aware of before investing here.

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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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.