AmifaLtd (TSE:7800) Is Making Moderate Use Of Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Amifa Co.,Ltd. (TSE:7800) does carry debt. But should shareholders be worried about its use of debt?

Our free stock report includes 2 warning signs investors should be aware of before investing in AmifaLtd. Read for free now.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is AmifaLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that AmifaLtd had JP¥1.25b of debt in December 2024, down from JP¥1.60b, one year before. On the flip side, it has JP¥946.0m in cash leading to net debt of about JP¥303.0m.

How Strong Is AmifaLtd's Balance Sheet?

The latest balance sheet data shows that AmifaLtd had liabilities of JP¥1.62b due within a year, and liabilities of JP¥643.0m falling due after that. Offsetting this, it had JP¥946.0m in cash and JP¥1.29b in receivables that were due within 12 months. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that AmifaLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the JP¥2.06b company is short on cash, but still worth keeping an eye on the balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. But it is AmifaLtd'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.

View our latest analysis for AmifaLtd

In the last year AmifaLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 8.3%, to JP¥8.9b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months AmifaLtd produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable JP¥230m 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. For example, we would not want to see a repeat of last year's loss of JP¥275m. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example AmifaLtd has 2 warning signs (and 1 which is a bit concerning) 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.