Health Check: How Prudently Does i-plugInc (TSE:4177) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, i-plug,Inc. (TSE:4177) does carry debt. But should shareholders be worried about its use of debt?

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. 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.

See our latest analysis for i-plugInc

What Is i-plugInc's Debt?

The image below, which you can click on for greater detail, shows that at December 2023 i-plugInc had debt of JP¥632.0m, up from JP¥474.0m in one year. But on the other hand it also has JP¥2.55b in cash, leading to a JP¥1.91b net cash position.

How Healthy Is i-plugInc's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that i-plugInc had liabilities of JP¥2.89b due within 12 months and liabilities of JP¥303.0m due beyond that. Offsetting these obligations, it had cash of JP¥2.55b as well as receivables valued at JP¥181.0m due within 12 months. So its liabilities total JP¥468.0m more than the combination of its cash and short-term receivables.

Since publicly traded i-plugInc shares are worth a total of JP¥4.95b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, i-plugInc boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine i-plugInc's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, i-plugInc reported revenue of JP¥4.5b, which is a gain of 28%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is i-plugInc?

Statistically speaking companies that lose money are riskier than those that make money. And the fact is that over the last twelve months i-plugInc lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of JP¥102m and booked a JP¥231m accounting loss. But the saving grace is the JP¥1.91b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, i-plugInc may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - i-plugInc has 2 warning signs we think you should be aware of.

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.