Does CyberBuzz (TSE:7069) Have A Healthy Balance Sheet?

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 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, CyberBuzz, Inc. (TSE:7069) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for CyberBuzz

What Is CyberBuzz's Net Debt?

The image below, which you can click on for greater detail, shows that at March 2024 CyberBuzz had debt of JP¥884.0m, up from JP¥486.0m in one year. On the flip side, it has JP¥809.0m in cash leading to net debt of about JP¥75.0m.

How Strong Is CyberBuzz's Balance Sheet?

The latest balance sheet data shows that CyberBuzz had liabilities of JP¥2.32b due within a year, and liabilities of JP¥322.0m falling due after that. Offsetting these obligations, it had cash of JP¥809.0m as well as receivables valued at JP¥1.20b due within 12 months. So its liabilities total JP¥635.0m more than the combination of its cash and short-term receivables.

Since publicly traded CyberBuzz shares are worth a total of JP¥8.27b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. But either way, CyberBuzz has virtually no net debt, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if CyberBuzz can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year CyberBuzz wasn't profitable at an EBIT level, but managed to grow its revenue by 50%, to JP¥7.0b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

Even though CyberBuzz managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable JP¥1.6b 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. 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¥90m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example CyberBuzz has 2 warning signs (and 1 which is potentially serious) we think 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.