Vactronics technologies (TWSE:6742) Has Debt But No Earnings; Should You Worry?

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 Vactronics technologies inc. (TWSE:6742) makes use of debt. But should shareholders be worried about its use of debt?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Vactronics technologies

What Is Vactronics technologies's Debt?

The chart below, which you can click on for greater detail, shows that Vactronics technologies had NT$336.8m in debt in March 2024; about the same as the year before. But it also has NT$904.9m in cash to offset that, meaning it has NT$568.1m net cash.

How Healthy Is Vactronics technologies' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Vactronics technologies had liabilities of NT$348.5m due within 12 months and liabilities of NT$120.7m due beyond that. Offsetting this, it had NT$904.9m in cash and NT$186.8m in receivables that were due within 12 months. So it can boast NT$622.5m more liquid assets than total liabilities.

This surplus suggests that Vactronics technologies has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Vactronics technologies 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 Vactronics technologies'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.

In the last year Vactronics technologies had a loss before interest and tax, and actually shrunk its revenue by 50%, to NT$522m. To be frank that doesn't bode well.

So How Risky Is Vactronics technologies?

Although Vactronics technologies had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of NT$19m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short 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. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for Vactronics technologies you should be aware of, and 1 of them shouldn't be ignored.

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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