Does Mobcast Holdings (TSE:3664) Have A Healthy 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.' 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 Mobcast Holdings Inc. (TSE:3664) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Mobcast Holdings

What Is Mobcast Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Mobcast Holdings had JP¥1.25b of debt in June 2024, down from JP¥1.37b, one year before. However, because it has a cash reserve of JP¥420.0m, its net debt is less, at about JP¥830.0m.

A Look At Mobcast Holdings' Liabilities

We can see from the most recent balance sheet that Mobcast Holdings had liabilities of JP¥762.0m falling due within a year, and liabilities of JP¥1.06b due beyond that. Offsetting this, it had JP¥420.0m in cash and JP¥357.0m in receivables that were due within 12 months. So it has liabilities totalling JP¥1.04b more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of JP¥1.70b, so it does suggest shareholders should keep an eye on Mobcast Holdings' use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Mobcast Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Mobcast Holdings had a loss before interest and tax, and actually shrunk its revenue by 6.9%, to JP¥3.3b. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Mobcast Holdings produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable JP¥233m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled JP¥236m in negative free cash flow over the last twelve months. So suffice it to say we consider the stock very risky. 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 Mobcast Holdings has 2 warning signs (and 1 which makes us a bit uncomfortable) we think 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.