Inforich (TSE:9338) Has A Rock Solid Balance Sheet

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. Importantly, Inforich Inc. (TSE:9338) does carry debt. But the real question is whether this debt is making the company risky.

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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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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.

What Is Inforich's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Inforich had debt of JP¥6.87b, up from JP¥1.73b in one year. However, its balance sheet shows it holds JP¥9.17b in cash, so it actually has JP¥2.29b net cash.

How Strong Is Inforich's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Inforich had liabilities of JP¥10.7b due within 12 months and liabilities of JP¥2.85b due beyond that. On the other hand, it had cash of JP¥9.17b and JP¥950.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥3.40b.

Given Inforich has a market capitalization of JP¥34.2b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Inforich also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Inforich

Even more impressive was the fact that Inforich grew its EBIT by 175% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Inforich can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Inforich may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last two years, Inforich actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Inforich's liabilities, but we can be reassured by the fact it has has net cash of JP¥2.29b. The cherry on top was that in converted 158% of that EBIT to free cash flow, bringing in JP¥2.3b. So is Inforich's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 1 warning sign for Inforich you should be aware of.

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.