Is Shinwa Wise HoldingsLtd (TSE:2437) Using Debt In A Risky Way?

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.' 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. We note that Shinwa Wise Holdings Co.,Ltd. (TSE:2437) 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 is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Shinwa Wise HoldingsLtd Carry?

The image below, which you can click on for greater detail, shows that Shinwa Wise HoldingsLtd had debt of JP¥282.0m at the end of August 2025, a reduction from JP¥318.0m over a year. However, it does have JP¥916.0m in cash offsetting this, leading to net cash of JP¥634.0m.

How Strong Is Shinwa Wise HoldingsLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Shinwa Wise HoldingsLtd had liabilities of JP¥310.0m due within 12 months and liabilities of JP¥244.0m due beyond that. On the other hand, it had cash of JP¥916.0m and JP¥7.00m worth of receivables due within a year. So it can boast JP¥369.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Shinwa Wise HoldingsLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Shinwa Wise HoldingsLtd 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 Shinwa Wise HoldingsLtd'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.

See our latest analysis for Shinwa Wise HoldingsLtd

In the last year Shinwa Wise HoldingsLtd had a loss before interest and tax, and actually shrunk its revenue by 27%, to JP¥1.6b. That makes us nervous, to say the least.

So How Risky Is Shinwa Wise HoldingsLtd?

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 Shinwa Wise HoldingsLtd had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through JP¥226m of cash and made a loss of JP¥402m. While this does make the company a bit risky, it's important to remember it has net cash of JP¥634.0m. 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. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Shinwa Wise HoldingsLtd (of which 2 are significant!) you should know about.

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.