Is Astroscale Holdings (TSE:186A) Using Debt Sensibly?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Astroscale Holdings Inc. (TSE:186A) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Astroscale Holdings Carry?

As you can see below, Astroscale Holdings had JP¥10.7b of debt, at July 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds JP¥25.8b in cash, so it actually has JP¥15.1b net cash.

A Look At Astroscale Holdings' Liabilities

According to the last reported balance sheet, Astroscale Holdings had liabilities of JP¥19.4b due within 12 months, and liabilities of JP¥7.06b due beyond 12 months. On the other hand, it had cash of JP¥25.8b and JP¥3.81b worth of receivables due within a year. So it actually has JP¥3.18b more liquid assets than total liabilities.

This short term liquidity is a sign that Astroscale Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Astroscale Holdings has more cash than debt is arguably a good indication that it can manage its debt safely. 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 Astroscale Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

View our latest analysis for Astroscale Holdings

In the last year Astroscale Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 38%, to JP¥3.5b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Astroscale Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Astroscale Holdings had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of JP¥12b and booked a JP¥14b accounting loss. But at least it has JP¥15.1b on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, Astroscale Holdings may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Case in point: We've spotted 2 warning signs for Astroscale Holdings you should be aware of, and 1 of them is significant.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.