Does Dimerco Express (GTSM:5609) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Dimerco Express Corporation (GTSM:5609) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Dimerco Express

What Is Dimerco Express's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2020 Dimerco Express had NT$700.6m of debt, an increase on NT$622.0m, over one year. But on the other hand it also has NT$2.65b in cash, leading to a NT$1.95b net cash position.

How Healthy Is Dimerco Express's Balance Sheet?

The latest balance sheet data shows that Dimerco Express had liabilities of NT$3.13b due within a year, and liabilities of NT$180.1m falling due after that. On the other hand, it had cash of NT$2.65b and NT$1.98b worth of receivables due within a year. So it actually has NT$1.32b more liquid assets than total liabilities.

This surplus suggests that Dimerco Express 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. Succinctly put, Dimerco Express boasts net cash, so it's fair to say it does not have a heavy debt load!

Even more impressive was the fact that Dimerco Express grew its EBIT by 145% over twelve months. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Dimerco Express 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Dimerco Express may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Dimerco Express actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing up

While it is always sensible to investigate a company's debt, in this case Dimerco Express has NT$1.95b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of NT$1.7b, being 157% of its EBIT. The bottom line is that we do not find Dimerco Express's debt levels at all concerning. Over time, share prices tend to follow earnings per share, so if you're interested in Dimerco Express, you may well want to click here to check an interactive graph of its earnings per share history.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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