Does Calin Technology (TWSE:4976) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 Calin Technology Co., Ltd. (TWSE:4976) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Calin Technology

How Much Debt Does Calin Technology Carry?

The image below, which you can click on for greater detail, shows that Calin Technology had debt of NT$300.8m at the end of September 2024, a reduction from NT$433.0m over a year. However, its balance sheet shows it holds NT$1.18b in cash, so it actually has NT$882.7m net cash.

How Strong Is Calin Technology's Balance Sheet?

We can see from the most recent balance sheet that Calin Technology had liabilities of NT$377.2m falling due within a year, and liabilities of NT$164.2m due beyond that. On the other hand, it had cash of NT$1.18b and NT$287.2m worth of receivables due within a year. So it can boast NT$929.3m more liquid assets than total liabilities.

This excess liquidity suggests that Calin Technology is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Calin Technology boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Calin 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.

Over 12 months, Calin Technology reported revenue of NT$1.1b, which is a gain of 14%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Calin Technology?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that Calin Technology had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through NT$18m of cash and made a loss of NT$149m. But the saving grace is the NT$882.7m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Calin Technology that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.