Uniflex Technology (TWSE:3321) Is Carrying A Fair Bit Of Debt

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.' 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 Uniflex Technology Inc. (TWSE:3321) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Uniflex Technology

How Much Debt Does Uniflex Technology Carry?

The image below, which you can click on for greater detail, shows that Uniflex Technology had debt of NT$481.0m at the end of March 2024, a reduction from NT$1.09b over a year. However, because it has a cash reserve of NT$157.8m, its net debt is less, at about NT$323.2m.

A Look At Uniflex Technology's Liabilities

We can see from the most recent balance sheet that Uniflex Technology had liabilities of NT$816.3m falling due within a year, and liabilities of NT$255.6m due beyond that. Offsetting these obligations, it had cash of NT$157.8m as well as receivables valued at NT$756.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by NT$157.4m.

Of course, Uniflex Technology has a market capitalization of NT$1.80b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Uniflex Technology's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Uniflex Technology wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to NT$1.6b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Importantly, Uniflex Technology had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping NT$243m. 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. However, it doesn't help that it burned through NT$219m of cash over the last year. So suffice it to say we consider the stock very risky. 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. Case in point: We've spotted 4 warning signs for Uniflex Technology you should be aware of, and 1 of them 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.