Is PeptiDream (TSE:4587) Using Too Much Debt?

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.' 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. As with many other companies PeptiDream Inc. (TSE:4587) makes use of debt. But the more important question is: how much risk is that debt creating?

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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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does PeptiDream Carry?

As you can see below, PeptiDream had JP¥18.3b of debt at June 2025, down from JP¥20.9b a year prior. However, its balance sheet shows it holds JP¥33.3b in cash, so it actually has JP¥15.0b net cash.

How Healthy Is PeptiDream's Balance Sheet?

According to the last reported balance sheet, PeptiDream had liabilities of JP¥8.18b due within 12 months, and liabilities of JP¥16.7b due beyond 12 months. Offsetting these obligations, it had cash of JP¥33.3b as well as receivables valued at JP¥5.30b due within 12 months. So it actually has JP¥13.8b more liquid assets than total liabilities.

This short term liquidity is a sign that PeptiDream could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, PeptiDream boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine PeptiDream's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Check out our latest analysis for PeptiDream

In the last year PeptiDream had a loss before interest and tax, and actually shrunk its revenue by 66%, to JP¥19b. That makes us nervous, to say the least.

So How Risky Is PeptiDream?

While PeptiDream lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow JP¥13b. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. 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 example, we've discovered 1 warning sign for PeptiDream that you should be aware of before investing here.

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.