Is Danto Holdings (TSE:5337) Weighed On By Its Debt Load?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Danto Holdings Corporation (TSE:5337) does use debt in its business. But the more important question is: how much risk is that debt creating?

Our free stock report includes 1 warning sign investors should be aware of before investing in Danto Holdings. Read for free now.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Danto Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Danto Holdings had JP¥250.0m of debt in December 2024, down from JP¥294.0m, one year before. However, it does have JP¥360.0m in cash offsetting this, leading to net cash of JP¥110.0m.

A Look At Danto Holdings' Liabilities

The latest balance sheet data shows that Danto Holdings had liabilities of JP¥1.07b due within a year, and liabilities of JP¥1.25b falling due after that. Offsetting this, it had JP¥360.0m in cash and JP¥1.18b in receivables that were due within 12 months. So it has liabilities totalling JP¥770.0m more than its cash and near-term receivables, combined.

Given Danto Holdings has a market capitalization of JP¥21.2b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Danto Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Danto Holdings's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Check out our latest analysis for Danto Holdings

In the last year Danto Holdings had a loss before interest and tax, and actually shrunk its revenue by 4.3%, to JP¥5.3b. That's not what we would hope to see.

So How Risky Is Danto Holdings?

Although Danto Holdings had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of JP¥33m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. To that end, you should be aware of the 1 warning sign we've spotted with Danto Holdings .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.