Does BALMUDA (TSE:6612) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 BALMUDA Inc. (TSE:6612) makes use of debt. But the real question is whether this debt is making the company risky.

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for BALMUDA

How Much Debt Does BALMUDA Carry?

As you can see below, BALMUDA had JP¥553.0m of debt at September 2024, down from JP¥1.39b a year prior. However, it does have JP¥1.50b in cash offsetting this, leading to net cash of JP¥949.0m.

How Strong Is BALMUDA's Balance Sheet?

According to the last reported balance sheet, BALMUDA had liabilities of JP¥1.47b due within 12 months, and liabilities of JP¥93.0m due beyond 12 months. On the other hand, it had cash of JP¥1.50b and JP¥1.03b worth of receivables due within a year. So it actually has JP¥969.0m more liquid assets than total liabilities.

This short term liquidity is a sign that BALMUDA could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that BALMUDA 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 it is BALMUDA'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.

In the last year BALMUDA wasn't profitable at an EBIT level, but managed to grow its revenue by 5.4%, to JP¥14b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is BALMUDA?

Although BALMUDA had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of JP¥879m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example BALMUDA has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.