Does DLE (TSE:3686) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, DLE Inc. (TSE:3686) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does DLE Carry?

The image below, which you can click on for greater detail, shows that at September 2025 DLE had debt of JP¥300.0m, up from none in one year. However, its balance sheet shows it holds JP¥1.29b in cash, so it actually has JP¥994.0m net cash.

How Healthy Is DLE's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that DLE had liabilities of JP¥706.0m due within 12 months and liabilities of JP¥379.0m due beyond that. Offsetting this, it had JP¥1.29b in cash and JP¥166.0m in receivables that were due within 12 months. So it can boast JP¥375.0m more liquid assets than total liabilities.

This short term liquidity is a sign that DLE could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that DLE has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since DLE will need earnings to service that debt. 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.

Check out our latest analysis for DLE

Over 12 months, DLE made a loss at the EBIT level, and saw its revenue drop to JP¥1.8b, which is a fall of 2.9%. We would much prefer see growth.

So How Risky Is DLE?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year DLE had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of JP¥451m and booked a JP¥443m accounting loss. But the saving grace is the JP¥994.0m on the balance sheet. That means it could keep spending at its current rate for more than two years. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for DLE you should be aware of, and 1 of them is concerning.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.