These 4 Measures Indicate That Hatch WorkLtd (TSE:148A) Is Using Debt Safely

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 note that Hatch Work Co.,Ltd. (TSE:148A) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Hatch WorkLtd's Net Debt?

As you can see below, Hatch WorkLtd had JP¥435.5m of debt at June 2025, down from JP¥531.9m a year prior. But it also has JP¥2.02b in cash to offset that, meaning it has JP¥1.59b net cash.

How Strong Is Hatch WorkLtd's Balance Sheet?

The latest balance sheet data shows that Hatch WorkLtd had liabilities of JP¥1.56b due within a year, and liabilities of JP¥195.9m falling due after that. Offsetting this, it had JP¥2.02b in cash and JP¥11.3m in receivables that were due within 12 months. So it actually has JP¥271.5m 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

Better yet, Hatch WorkLtd grew its EBIT by 158% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Hatch WorkLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the most recent two years, Hatch WorkLtd recorded free cash flow worth 61% 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¥1.59b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 158% over the last year. So we don't think Hatch WorkLtd's use of debt is risky. 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 learn about the 3 warning signs we've spotted with Hatch WorkLtd (including 1 which is concerning) .

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.

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.