Is TriIs (TSE:4840) Using Debt In A Risky Way?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, TriIs Incorporated (TSE:4840) does carry debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for TriIs

What Is TriIs's Debt?

As you can see below, TriIs had JP¥233.0m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥2.97b in cash offsetting this, leading to net cash of JP¥2.73b.

A Look At TriIs' Liabilities

Zooming in on the latest balance sheet data, we can see that TriIs had liabilities of JP¥267.0m due within 12 months and liabilities of JP¥239.0m due beyond that. On the other hand, it had cash of JP¥2.97b and JP¥19.0m worth of receivables due within a year. So it actually has JP¥2.48b more liquid assets than total liabilities.

This excess liquidity is a great indication that TriIs' balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, TriIs boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is TriIs'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 TriIs wasn't profitable at an EBIT level, but managed to grow its revenue by 24%, to JP¥717m. With any luck the company will be able to grow its way to profitability.

So How Risky Is TriIs?

Although TriIs had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of JP¥89m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We also take heart from the solid 24% revenue growth in 12 months; undoubtedly a good sign. That growth could mean this is one stock well worth watching. 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. For instance, we've identified 4 warning signs for TriIs that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.