David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies kaihan co.,Ltd. (TSE:3133) makes use of debt. But is this debt a concern to shareholders?
What Risk Does Debt Bring?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
Check out our latest analysis for kaihanLtd
What Is kaihanLtd's Debt?
As you can see below, at the end of September 2024, kaihanLtd had JP¥1.94b of debt, up from JP¥1.62b a year ago. Click the image for more detail. On the flip side, it has JP¥507.0m in cash leading to net debt of about JP¥1.43b.
How Healthy Is kaihanLtd's Balance Sheet?
The latest balance sheet data shows that kaihanLtd had liabilities of JP¥1.46b due within a year, and liabilities of JP¥1.35b falling due after that. Offsetting this, it had JP¥507.0m in cash and JP¥173.0m in receivables that were due within 12 months. So it has liabilities totalling JP¥2.13b more than its cash and near-term receivables, combined.
Given kaihanLtd has a market capitalization of JP¥38.6b, 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. When analysing debt levels, the balance sheet is the obvious place to start. But it is kaihanLtd'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.
Over 12 months, kaihanLtd reported revenue of JP¥2.6b, which is a gain of 7.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.
Caveat Emptor
Importantly, kaihanLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost JP¥520m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through JP¥810m of cash over the last year. So to be blunt we think it is risky. 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. For example, we've discovered 3 warning signs for kaihanLtd (1 doesn't sit too well with us!) that you should be aware of before investing here.
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.
About TSE:3133
Low with worrying balance sheet.
