Is CasterLtd (TSE:9331) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Caster Co.Ltd. (TSE:9331) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is CasterLtd's Net Debt?

As you can see below, CasterLtd had JP¥457.0m of debt at August 2025, down from JP¥525.0m a year prior. But on the other hand it also has JP¥1.18b in cash, leading to a JP¥727.0m net cash position.

A Look At CasterLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that CasterLtd had liabilities of JP¥1.03b due within 12 months and liabilities of JP¥132.0m due beyond that. Offsetting these obligations, it had cash of JP¥1.18b as well as receivables valued at JP¥291.0m due within 12 months. So it can boast JP¥312.0m more liquid assets than total liabilities.

This excess liquidity suggests that CasterLtd is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that CasterLtd has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since CasterLtd 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.

View our latest analysis for CasterLtd

In the last year CasterLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 3.3%, to JP¥4.6b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is CasterLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year CasterLtd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of JP¥381m and booked a JP¥393m accounting loss. While this does make the company a bit risky, it's important to remember it has net cash of JP¥727.0m. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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 be aware of the 2 warning signs we've spotted with CasterLtd .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.