David Iben put it effectively when he stated, ‘Volatility shouldn’t be a danger we care about. What we care about is avoiding the everlasting lack of capital.’ So it could be apparent that it’s essential to contemplate debt, when you concentrate on how dangerous any given inventory is, as a result of an excessive amount of debt can sink an organization. Importantly, Uniflex Know-how Inc. (TPE:3321) does carry debt. However the extra essential query is: how a lot danger is that debt creating?
Why Does Debt Convey Danger?
Debt assists a enterprise till the enterprise has bother paying it off, both with new capital or with free money circulate. If issues get actually unhealthy, the lenders can take management of the enterprise. Nonetheless, a extra standard (however nonetheless costly) scenario is the place an organization should dilute shareholders at an affordable share worth merely to get debt below management. In fact, loads of corporations use debt to fund progress, with none damaging penalties. After we look at debt ranges, we first contemplate each money and debt ranges, collectively.
How A lot Debt Does Uniflex Know-how Carry?
As you’ll be able to see under, Uniflex Know-how had NT$1.21b of debt at September 2020, down from NT$1.56b a 12 months prior. Nonetheless, it additionally had NT$200.1m in money, and so its internet debt is NT$1.01b.
How Wholesome Is Uniflex Know-how’s Steadiness Sheet?
We will see from the newest steadiness sheet that Uniflex Know-how had liabilities of NT$1.61b falling due inside a 12 months, and liabilities of NT$166.2m due past that. Offsetting this, it had NT$200.1m in money and NT$876.6m in receivables that had been due inside 12 months. So its liabilities outweigh the sum of its money and (near-term) receivables by NT$703.0m.
This deficit is not so unhealthy as a result of Uniflex Know-how is value NT$2.17b, and thus might most likely increase sufficient capital to shore up its steadiness sheet, if the necessity arose. Nonetheless, it’s nonetheless worthwhile taking a detailed have a look at its potential to repay debt. There is no doubt that we be taught most about debt from the steadiness sheet. However you’ll be able to’t view debt in whole isolation; since Uniflex Know-how will want earnings to service that debt. So for those who’re eager to find extra about its earnings, it could be value testing this graph of its long term earnings trend.
Within the final 12 months Uniflex Know-how had a loss earlier than curiosity and tax, and really shrunk its income by 14%, to NT$2.0b. That is not what we might hope to see.
Whereas Uniflex Know-how’s falling income is about as heartwarming as a moist blanket, arguably its earnings earlier than curiosity and tax (EBIT) loss is even much less interesting. To be particular the EBIT loss got here in at NT$195m. After we have a look at that and recall the liabilities on its steadiness sheet, relative to money, it appears unwise to us for the corporate to have any debt. Fairly frankly we expect the steadiness sheet is way from match-fit, though it could possibly be improved with time. Nonetheless, it does not assist that it burned by NT$66m of money during the last 12 months. So suffice it to say we do contemplate the inventory to be dangerous. The steadiness sheet is clearly the world to give attention to when you’re analysing debt. However finally, each firm can include dangers that exist outdoors of the steadiness sheet. To that finish, it’s best to be taught concerning the 3 warning signs we’ve spotted with Uniflex Technology (including 1 which is concerning) .
If, in spite of everything that, you are extra excited about a quick rising firm with a rock-solid steadiness sheet, then take a look at our list of net cash growth stocks directly.
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