Is Inbound Tech (TSE:7031) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that Inbound Tech Inc. (TSE:7031) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Inbound Tech's Net Debt?

As you can see below, Inbound Tech had JP¥580.0m of debt at September 2025, down from JP¥724.0m a year prior. But on the other hand it also has JP¥1.56b in cash, leading to a JP¥976.0m net cash position.

How Strong Is Inbound Tech's Balance Sheet?

According to the last reported balance sheet, Inbound Tech had liabilities of JP¥745.0m due within 12 months, and liabilities of JP¥46.0m due beyond 12 months. On the other hand, it had cash of JP¥1.56b and JP¥340.0m worth of receivables due within a year. So it can boast JP¥1.11b more liquid assets than total liabilities.

This excess liquidity is a great indication that Inbound Tech's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Inbound Tech boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Inbound Tech'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 Inbound Tech

Over 12 months, Inbound Tech made a loss at the EBIT level, and saw its revenue drop to JP¥2.3b, which is a fall of 23%. To be frank that doesn't bode well.

So How Risky Is Inbound Tech?

Although Inbound Tech had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of JP¥144m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. The next few years will be important as the business matures. 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. Case in point: We've spotted 3 warning signs for Inbound Tech you should be aware of, and 2 of them are significant.

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.