Is General Interface Solution (GIS) Holding (TWSE:6456) Weighed On By Its Debt Load?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that General Interface Solution (GIS) Holding Limited (TWSE:6456) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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.

View our latest analysis for General Interface Solution (GIS) Holding

How Much Debt Does General Interface Solution (GIS) Holding Carry?

As you can see below, General Interface Solution (GIS) Holding had NT$11.3b of debt at March 2024, down from NT$17.1b a year prior. However, it does have NT$22.7b in cash offsetting this, leading to net cash of NT$11.4b.

A Look At General Interface Solution (GIS) Holding's Liabilities

Zooming in on the latest balance sheet data, we can see that General Interface Solution (GIS) Holding had liabilities of NT$20.4b due within 12 months and liabilities of NT$10.9b due beyond that. Offsetting this, it had NT$22.7b in cash and NT$14.5b in receivables that were due within 12 months. So it actually has NT$5.88b more liquid assets than total liabilities.

This surplus suggests that General Interface Solution (GIS) Holding is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that General Interface Solution (GIS) Holding has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine General Interface Solution (GIS) Holding's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, General Interface Solution (GIS) Holding made a loss at the EBIT level, and saw its revenue drop to NT$72b, which is a fall of 35%. To be frank that doesn't bode well.

So How Risky Is General Interface Solution (GIS) Holding?

While General Interface Solution (GIS) Holding lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow NT$6.8b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. Case in point: We've spotted 1 warning sign for General Interface Solution (GIS) Holding you should be aware of.

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.

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

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