Bengo4.comInc (TSE:6027) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Bengo4.com,Inc. (TSE:6027) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Bengo4.comInc's Net Debt?

As you can see below, Bengo4.comInc had JP¥2.49b of debt at March 2025, down from JP¥2.75b a year prior. But on the other hand it also has JP¥4.17b in cash, leading to a JP¥1.68b net cash position.

How Strong Is Bengo4.comInc's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Bengo4.comInc had liabilities of JP¥3.25b due within 12 months and liabilities of JP¥2.61b due beyond that. Offsetting these obligations, it had cash of JP¥4.17b as well as receivables valued at JP¥2.02b due within 12 months. So it actually has JP¥327.0m more liquid assets than total liabilities.

Having regard to Bengo4.comInc's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the JP¥66.4b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Bengo4.comInc boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Bengo4.comInc

Also good is that Bengo4.comInc grew its EBIT at 12% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Bengo4.comInc can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Bengo4.comInc has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Bengo4.comInc's free cash flow amounted to 31% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Bengo4.comInc has net cash of JP¥1.68b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 12% in the last twelve months. So we are not troubled with Bengo4.comInc's debt use. 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. For example, we've discovered 1 warning sign for Bengo4.comInc that you should be aware of before investing here.

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.