These 4 Measures Indicate That baby calendar (TSE:7363) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that baby calendar Inc. (TSE:7363) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does baby calendar Carry?

As you can see below, at the end of September 2025, baby calendar had JP¥519.0m of debt, up from JP¥82.0m a year ago. Click the image for more detail. But it also has JP¥537.0m in cash to offset that, meaning it has JP¥18.0m net cash.

How Strong Is baby calendar's Balance Sheet?

According to the last reported balance sheet, baby calendar had liabilities of JP¥538.0m due within 12 months, and liabilities of JP¥317.0m due beyond 12 months. Offsetting this, it had JP¥537.0m in cash and JP¥216.0m in receivables that were due within 12 months. So it has liabilities totalling JP¥102.0m more than its cash and near-term receivables, combined.

Given baby calendar has a market capitalization of JP¥1.39b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, baby calendar boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for baby calendar

Even more impressive was the fact that baby calendar grew its EBIT by 882% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. 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 baby calendar will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While baby calendar 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. During the last three years, baby calendar generated free cash flow amounting to a very robust 94% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that baby calendar has JP¥18.0m in net cash. And it impressed us with free cash flow of JP¥186m, being 94% of its EBIT. So is baby calendar's debt a risk? It doesn't seem so to us. 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. Be aware that baby calendar is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...

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.