These 4 Measures Indicate That Hitron Technologies (TWSE:2419) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Hitron Technologies Inc. (TWSE:2419) makes use of debt. But is this debt a concern to shareholders?

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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Hitron Technologies

What Is Hitron Technologies's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Hitron Technologies had NT$1.69b of debt in September 2024, down from NT$2.01b, one year before. However, its balance sheet shows it holds NT$2.82b in cash, so it actually has NT$1.13b net cash.

How Healthy Is Hitron Technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hitron Technologies had liabilities of NT$3.52b due within 12 months and liabilities of NT$947.0m due beyond that. On the other hand, it had cash of NT$2.82b and NT$1.97b worth of receivables due within a year. So it actually has NT$326.8m more liquid assets than total liabilities.

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

Importantly, Hitron Technologies's EBIT fell a jaw-dropping 33% in the last twelve months. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Hitron Technologies 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Hitron Technologies 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. Over the last three years, Hitron Technologies actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Hitron Technologies has NT$1.13b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of NT$472m, being 123% of its EBIT. So we don't have any problem with Hitron Technologies'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. For instance, we've identified 1 warning sign for Hitron Technologies that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.