We Think DIGITALIFT (TSE:9244) Can Manage Its Debt With Ease

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.' 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. Importantly, DIGITALIFT Inc. (TSE:9244) does carry debt. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does DIGITALIFT Carry?

You can click the graphic below for the historical numbers, but it shows that DIGITALIFT had JP¥935.0m of debt in September 2025, down from JP¥1.22b, one year before. But it also has JP¥1.47b in cash to offset that, meaning it has JP¥531.0m net cash.

How Strong Is DIGITALIFT's Balance Sheet?

The latest balance sheet data shows that DIGITALIFT had liabilities of JP¥1.25b due within a year, and liabilities of JP¥215.0m falling due after that. Offsetting this, it had JP¥1.47b in cash and JP¥472.0m in receivables that were due within 12 months. So it actually has JP¥472.0m more liquid assets than total liabilities.

This surplus strongly suggests that DIGITALIFT has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, DIGITALIFT boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for DIGITALIFT

Even more impressive was the fact that DIGITALIFT grew its EBIT by 453% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since DIGITALIFT 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. DIGITALIFT may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, DIGITALIFT generated free cash flow amounting to a very robust 87% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case DIGITALIFT has JP¥531.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥227m, being 87% of its EBIT. The bottom line is that DIGITALIFT's use of debt is absolutely fine. 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. For example, we've discovered 2 warning signs for DIGITALIFT (1 is potentially serious!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.