We Think Apaq Technology (TWSE:6449) Can Manage Its Debt With Ease

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.' 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. As with many other companies Apaq Technology Co., Ltd. (TWSE:6449) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Apaq Technology

What Is Apaq Technology's Net Debt?

As you can see below, Apaq Technology had NT$1.44b of debt at March 2024, down from NT$1.62b a year prior. But on the other hand it also has NT$1.58b in cash, leading to a NT$133.4m net cash position.

A Look At Apaq Technology's Liabilities

The latest balance sheet data shows that Apaq Technology had liabilities of NT$1.96b due within a year, and liabilities of NT$334.5m falling due after that. Offsetting these obligations, it had cash of NT$1.58b as well as receivables valued at NT$1.23b due within 12 months. So it can boast NT$514.7m more liquid assets than total liabilities.

This short term liquidity is a sign that Apaq Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Apaq Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Apaq Technology has boosted its EBIT by 68%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Apaq Technology will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Apaq Technology has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent three years, Apaq Technology recorded free cash flow worth 71% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Apaq Technology has net cash of NT$133.4m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 68% over the last year. So we don't think Apaq Technology's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Apaq Technology has 1 warning sign we think 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.

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