Is CyberTAN Technology (TWSE:3062) Using Debt Sensibly?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, CyberTAN Technology Inc. (TWSE:3062) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CyberTAN Technology

What Is CyberTAN Technology's Net Debt?

You can click the graphic below for the historical numbers, but it shows that CyberTAN Technology had NT$60.9m of debt in June 2024, down from NT$308.3m, one year before. However, it does have NT$2.35b in cash offsetting this, leading to net cash of NT$2.29b.

How Strong Is CyberTAN Technology's Balance Sheet?

We can see from the most recent balance sheet that CyberTAN Technology had liabilities of NT$1.40b falling due within a year, and liabilities of NT$434.4m due beyond that. On the other hand, it had cash of NT$2.35b and NT$743.3m worth of receivables due within a year. So it can boast NT$1.27b more liquid assets than total liabilities.

This surplus suggests that CyberTAN Technology has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, CyberTAN Technology 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 CyberTAN Technology will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year CyberTAN Technology had a loss before interest and tax, and actually shrunk its revenue by 32%, to NT$3.7b. That makes us nervous, to say the least.

So How Risky Is CyberTAN Technology?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year CyberTAN Technology had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of NT$253m and booked a NT$77m accounting loss. But the saving grace is the NT$2.29b on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that CyberTAN Technology is showing 2 warning signs in our investment analysis , and 1 of those is significant...

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.