Here’s why Ying Han Technology (TWSE:4562) could use some debt

Warren Buffett famously said, “Volatility is not the same as risk,” and it’s only natural to consider a company’s balance sheet when examining how risky it is, since debt is often involved when it comes to company collapses. Eikan Technology Co., Ltd. (TWSE:4562) does have debt on its balance sheet, but the real question is whether this debt is making the company risky.

When does debt become dangerous?

Generally speaking, debt only becomes a real problem when a company can’t easily pay it off, either by raising capital or with its own cash flow. Ultimately, if a company can’t meet its legal obligations to repay its debt, shareholders may get nothing. While this is less common, there are many cases where a debt-ridden company permanently dilutes shareholders’ equity because lenders force it to raise capital at a disadvantageous price. Having said that, the most common situation is where a company has managed its debt reasonably well, to its own advantage. When examining debt levels, we first consider both cash and debt levels.

View our latest analysis for Ying Han Technology

How much debt does Ying Han Technology have?

The graph below (which you can click to see more detail) shows that Ying Han Technology had debt of NT$879.3m in March 2024, roughly flat from the previous year. However, it had NT$243.2m in cash offsetting this, leading to net debt of about NT$636.1m.

How strong is Ying Han Technology’s balance sheet?

According to the most recent balance sheet, Ying Han Technology had liabilities of NT$764.2m due within 12 months, and liabilities of NT$423.9m due beyond 12 months. Offsetting this, it had cash of NT$243.2m and accounts receivable of NT$268.7m due within 12 months. This means that its liabilities exceed the sum of its cash and (near-term) receivables by NT$676.3m.

Of course, since Ying Han Technology has a market capitalization of NT$5.67b, these liabilities are probably manageable. But with debt at a premium, we would recommend shareholders continue to monitor the balance sheet going forward. We’ll arguably learn most about debt from the balance sheet, but it’s Ying Han Technology’s earnings that will influence how the balance sheet holds up in the future. So if you want to learn more about earnings, it might be worth checking this graph of its long term earnings trend.

Last year, Ying Han Technology made a loss before interest and tax and saw revenue fall 7.9% to NT$722 million.We want to grow.

Buyer Responsibility

Importantly, Inhan Technology posted a loss in earnings before interest and tax (EBIT) last year. In fact, at the EBIT level, it was a loss of NT$86 million. Looking at this and recalling the debt on the balance sheet compared to cash, it doesn’t seem wise for the company to be carrying debt. Frankly, we think the balance sheet is far from match-worthy, but it could improve over time. But it doesn’t help that it burned through NT$26 million of cash last year. Therefore, it’s probably enough to consider this stock risky. There’s no doubt that we learn most about debt from the balance sheet. But ultimately, all companies can have risks that exist outside the balance sheet. If Inhan Technology 3 Warning Signs in Investment Analysis things you should know…

If you want to invest in a business that can grow profits without the burden of debt, check this out. free A list of growing companies with net cash on their balance sheets.

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