Does HannStar Display (TWSE:6116) Have A Healthy Balance Sheet?

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. We note that HannStar Display Corporation (TWSE:6116) 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for HannStar Display

What Is HannStar Display's Debt?

As you can see below, at the end of June 2024, HannStar Display had NT$4.60b of debt, up from NT$1.38b a year ago. Click the image for more detail. But on the other hand it also has NT$6.71b in cash, leading to a NT$2.11b net cash position.

How Strong Is HannStar Display's Balance Sheet?

According to the last reported balance sheet, HannStar Display had liabilities of NT$6.64b due within 12 months, and liabilities of NT$4.78b due beyond 12 months. Offsetting these obligations, it had cash of NT$6.71b as well as receivables valued at NT$2.49b due within 12 months. So it has liabilities totalling NT$2.23b more than its cash and near-term receivables, combined.

Given HannStar Display has a market capitalization of NT$24.5b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, HannStar Display also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is HannStar Display'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.

Over 12 months, HannStar Display made a loss at the EBIT level, and saw its revenue drop to NT$11b, which is a fall of 20%. That's not what we would hope to see.

So How Risky Is HannStar Display?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months HannStar Display lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through NT$6.5b of cash and made a loss of NT$5.3b. But at least it has NT$2.11b on the balance sheet to spend on growth, near-term. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see 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. Case in point: We've spotted 1 warning sign for HannStar Display 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.