Is D. Western Therapeutics Institute (TSE:4576) Using Debt Sensibly?

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 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. Importantly, D. Western Therapeutics Institute, Inc. (TSE:4576) does carry debt. But the more important question is: how much risk is that debt creating?

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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 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 D. Western Therapeutics Institute's Net Debt?

As you can see below, D. Western Therapeutics Institute had JP¥510.7m of debt at March 2025, down from JP¥993.0m a year prior. But it also has JP¥1.14b in cash to offset that, meaning it has JP¥630.6m net cash.

How Healthy Is D. Western Therapeutics Institute's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that D. Western Therapeutics Institute had liabilities of JP¥83.1m due within 12 months and liabilities of JP¥515.7m due beyond that. Offsetting this, it had JP¥1.14b in cash and JP¥115.4m in receivables that were due within 12 months. So it actually has JP¥658.0m more liquid assets than total liabilities.

This surplus suggests that D. Western Therapeutics Institute has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that D. Western Therapeutics Institute has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is D. Western Therapeutics Institute's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for D. Western Therapeutics Institute

In the last year D. Western Therapeutics Institute wasn't profitable at an EBIT level, but managed to grow its revenue by 4.9%, to JP¥464m. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is D. Western Therapeutics Institute?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year D. Western Therapeutics Institute had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through JP¥1.3b of cash and made a loss of JP¥1.1b. With only JP¥630.6m on the balance sheet, it would appear that its going to need to raise capital again soon. 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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 6 warning signs for D. Western Therapeutics Institute (4 are potentially serious) you should be aware of.

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.