Would Unitech Printed Circuit Board (TWSE:2367) Be Better Off With Less Debt?

Warren Buffett famously said, '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. We can see that Unitech Printed Circuit Board Corp. (TWSE:2367) 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 assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Unitech Printed Circuit Board

How Much Debt Does Unitech Printed Circuit Board Carry?

As you can see below, Unitech Printed Circuit Board had NT$7.85b of debt at December 2023, down from NT$8.33b a year prior. On the flip side, it has NT$886.9m in cash leading to net debt of about NT$6.96b.

How Healthy Is Unitech Printed Circuit Board's Balance Sheet?

We can see from the most recent balance sheet that Unitech Printed Circuit Board had liabilities of NT$7.11b falling due within a year, and liabilities of NT$4.50b due beyond that. Offsetting this, it had NT$886.9m in cash and NT$4.10b in receivables that were due within 12 months. So its liabilities total NT$6.62b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Unitech Printed Circuit Board has a market capitalization of NT$20.1b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Unitech Printed Circuit Board can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Unitech Printed Circuit Board made a loss at the EBIT level, and saw its revenue drop to NT$15b, which is a fall of 14%. That's not what we would hope to see.

Caveat Emptor

Not only did Unitech Printed Circuit Board's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost NT$388m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of NT$344m into a profit. So we do think this stock is quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. 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 Unitech Printed Circuit Board (of which 2 make us uncomfortable!) you should know about.

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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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.