These 4 Measures Indicate That Kidswell Bio (TSE:4584) Is Using Debt Reasonably Well

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. Importantly, Kidswell Bio Corporation (TSE:4584) 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 is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is Kidswell Bio's Net Debt?

As you can see below, Kidswell Bio had JP¥1.84b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥3.00b in cash offsetting this, leading to net cash of JP¥1.16b.

How Healthy Is Kidswell Bio's Balance Sheet?

The latest balance sheet data shows that Kidswell Bio had liabilities of JP¥4.32b due within a year, and liabilities of JP¥1.28b falling due after that. Offsetting this, it had JP¥3.00b in cash and JP¥1.32b in receivables that were due within 12 months. So it has liabilities totalling JP¥1.29b more than its cash and near-term receivables, combined.

Given Kidswell Bio has a market capitalization of JP¥16.6b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Kidswell Bio boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Kidswell Bio

Notably, Kidswell Bio made a loss at the EBIT level, last year, but improved that to positive EBIT of JP¥28m in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Kidswell Bio 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 company can only pay off debt with cold hard cash, not accounting profits. Kidswell Bio 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. Happily for any shareholders, Kidswell Bio actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Kidswell Bio has JP¥1.16b in net cash. And it impressed us with free cash flow of JP¥930m, being 3,321% of its EBIT. So we don't have any problem with Kidswell Bio's use of debt. 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. Be aware that Kidswell Bio is showing 1 warning sign in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.