Does Architects Studio Japan (TSE:6085) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Architects Studio Japan Inc. (TSE:6085) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Architects Studio Japan Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Architects Studio Japan had JP¥953.0m of debt, an increase on JP¥239.0m, over one year. However, it does have JP¥564.0m in cash offsetting this, leading to net debt of about JP¥389.0m.

How Healthy Is Architects Studio Japan's Balance Sheet?

According to the last reported balance sheet, Architects Studio Japan had liabilities of JP¥465.0m due within 12 months, and liabilities of JP¥946.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥564.0m as well as receivables valued at JP¥137.0m due within 12 months. So it has liabilities totalling JP¥710.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Architects Studio Japan has a market capitalization of JP¥3.44b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is Architects Studio Japan'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.

See our latest analysis for Architects Studio Japan

Over 12 months, Architects Studio Japan reported revenue of JP¥1.0b, which is a gain of 79%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though Architects Studio Japan managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost JP¥222m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled JP¥127m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Architects Studio Japan that you should be aware of before investing here.

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.