Is Yang Ming Marine Transport (TWSE:2609) Weighed On By Its Debt Load?

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 Yang Ming Marine Transport Corporation (TWSE:2609) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Yang Ming Marine Transport

What Is Yang Ming Marine Transport's Debt?

The image below, which you can click on for greater detail, shows that Yang Ming Marine Transport had debt of NT$11.8b at the end of December 2023, a reduction from NT$14.7b over a year. However, its balance sheet shows it holds NT$185.2b in cash, so it actually has NT$173.4b net cash.

How Healthy Is Yang Ming Marine Transport's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Yang Ming Marine Transport had liabilities of NT$52.6b due within 12 months and liabilities of NT$62.3b due beyond that. Offsetting these obligations, it had cash of NT$185.2b as well as receivables valued at NT$9.54b due within 12 months. So it can boast NT$79.9b more liquid assets than total liabilities.

This surplus liquidity suggests that Yang Ming Marine Transport's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Yang Ming Marine Transport boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Yang Ming Marine Transport's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Yang Ming Marine Transport had a loss before interest and tax, and actually shrunk its revenue by 63%, to NT$141b. To be frank that doesn't bode well.

So How Risky Is Yang Ming Marine Transport?

Although Yang Ming Marine Transport had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of NT$4.8b. 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. The next few years will be important as the business matures. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Yang Ming Marine Transport (of which 2 are concerning!) you should know about.

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.