Does Nichidai (TYO:6467) Have A Healthy Balance Sheet?

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 Nichidai Corporation (TYO:6467) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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 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. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Nichidai

What Is Nichidai's Net Debt?

The chart below, which you can click on for greater detail, shows that Nichidai had JP¥1.81b in debt in September 2020; about the same as the year before. However, it does have JP¥3.84b in cash offsetting this, leading to net cash of JP¥2.03b.

How Healthy Is Nichidai's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nichidai had liabilities of JP¥2.64b due within 12 months and liabilities of JP¥831.0m due beyond that. Offsetting these obligations, it had cash of JP¥3.84b as well as receivables valued at JP¥2.43b due within 12 months. So it can boast JP¥2.80b more liquid assets than total liabilities.

This luscious liquidity implies that Nichidai's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Nichidai boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Nichidai's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Nichidai had a loss before interest and tax, and actually shrunk its revenue by 29%, to JP¥12b. That makes us nervous, to say the least.

So How Risky Is Nichidai?

While Nichidai lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow JP¥299m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. There's no doubt the next few years will be crucial to how the business matures. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Nichidai that you should be aware of.

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. 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.
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