Premier Anti-Aging (TSE:4934) Has Debt But No Earnings; Should You Worry?

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.' 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. We can see that Premier Anti-Aging Co., Ltd. (TSE:4934) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Premier Anti-Aging

How Much Debt Does Premier Anti-Aging Carry?

You can click the graphic below for the historical numbers, but it shows that as of October 2023 Premier Anti-Aging had JP¥2.80b of debt, an increase on JP¥939.0m, over one year. But on the other hand it also has JP¥5.45b in cash, leading to a JP¥2.66b net cash position.

How Healthy Is Premier Anti-Aging's Balance Sheet?

We can see from the most recent balance sheet that Premier Anti-Aging had liabilities of JP¥3.91b falling due within a year, and liabilities of JP¥1.43b due beyond that. On the other hand, it had cash of JP¥5.45b and JP¥1.91b worth of receivables due within a year. So it actually has JP¥2.02b more liquid assets than total liabilities.

It's good to see that Premier Anti-Aging has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Premier Anti-Aging boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Premier Anti-Aging's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Premier Anti-Aging had a loss before interest and tax, and actually shrunk its revenue by 23%, to JP¥24b. To be frank that doesn't bode well.

So How Risky Is Premier Anti-Aging?

While Premier Anti-Aging lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow JP¥1.6b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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. Be aware that Premier Anti-Aging is showing 2 warning signs in our investment analysis , you should know about...

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.