Is Hatch WorkLtd (TSE:148A) A Risky Investment?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Hatch Work Co.,Ltd. (TSE:148A) makes use of debt. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Hatch WorkLtd Carry?

As you can see below, Hatch WorkLtd had JP¥423.0m of debt at September 2025, down from JP¥521.9m a year prior. But on the other hand it also has JP¥2.09b in cash, leading to a JP¥1.67b net cash position.

How Strong Is Hatch WorkLtd's Balance Sheet?

The latest balance sheet data shows that Hatch WorkLtd had liabilities of JP¥1.74b due within a year, and liabilities of JP¥92.3m falling due after that. Offsetting these obligations, it had cash of JP¥2.09b as well as receivables valued at JP¥70.3m due within 12 months. So it can boast JP¥333.1m more liquid assets than total liabilities.

This short term liquidity is a sign that Hatch WorkLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Hatch WorkLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Hatch WorkLtd

In addition to that, we're happy to report that Hatch WorkLtd has boosted its EBIT by 91%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Hatch WorkLtd will need earnings to service that debt. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Hatch WorkLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent two years, Hatch WorkLtd recorded free cash flow worth 51% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Hatch WorkLtd has net cash of JP¥1.67b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 91% over the last year. So is Hatch WorkLtd's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 2 warning signs we've spotted with Hatch WorkLtd .

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. 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.