Does KitaboLtd (TSE:3409) Have A Healthy Balance Sheet?

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Kitabo Co.,Ltd (TSE:3409) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 KitaboLtd Carry?

As you can see below, KitaboLtd had JP¥523.0m of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has JP¥639.0m in cash, leading to a JP¥116.0m net cash position.

How Strong Is KitaboLtd's Balance Sheet?

We can see from the most recent balance sheet that KitaboLtd had liabilities of JP¥510.0m falling due within a year, and liabilities of JP¥414.0m due beyond that. On the other hand, it had cash of JP¥639.0m and JP¥179.0m worth of receivables due within a year. So its liabilities total JP¥106.0m more than the combination of its cash and short-term receivables.

Given KitaboLtd has a market capitalization of JP¥3.59b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, KitaboLtd 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 KitaboLtd'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.

View our latest analysis for KitaboLtd

Over 12 months, KitaboLtd reported revenue of JP¥1.7b, which is a gain of 21%, 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 KitaboLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that KitaboLtd had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through JP¥42m of cash and made a loss of JP¥73m. But the saving grace is the JP¥116.0m 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, KitaboLtd may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 4 warning signs we've spotted with KitaboLtd (including 1 which is a bit unpleasant) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.