Would Career Technology (Mfg.) (TWSE:6153) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Career Technology (Mfg.) Co., Ltd. (TWSE:6153) does carry debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Career Technology (Mfg.)

What Is Career Technology (Mfg.)'s Net Debt?

The image below, which you can click on for greater detail, shows that Career Technology (Mfg.) had debt of NT$4.56b at the end of March 2024, a reduction from NT$5.78b over a year. However, it does have NT$2.93b in cash offsetting this, leading to net debt of about NT$1.64b.

How Strong Is Career Technology (Mfg.)'s Balance Sheet?

We can see from the most recent balance sheet that Career Technology (Mfg.) had liabilities of NT$3.48b falling due within a year, and liabilities of NT$3.68b due beyond that. On the other hand, it had cash of NT$2.93b and NT$1.59b worth of receivables due within a year. So its liabilities total NT$2.65b more than the combination of its cash and short-term receivables.

Of course, Career Technology (Mfg.) has a market capitalization of NT$14.3b, 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. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Career Technology (Mfg.) 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.

Over 12 months, Career Technology (Mfg.) made a loss at the EBIT level, and saw its revenue drop to NT$9.5b, which is a fall of 30%. That makes us nervous, to say the least.

Caveat Emptor

While Career Technology (Mfg.)'s falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping NT$2.1b. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of NT$3.0b into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Career Technology (Mfg.) you should be aware of, and 1 of them is concerning.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com