Is Healios K.K (TSE:4593) Weighed On By Its Debt Load?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Healios K.K. (TSE:4593) makes use of debt. But the real question is whether this debt is making the company risky.

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.

View our latest analysis for Healios K.K

How Much Debt Does Healios K.K Carry?

The image below, which you can click on for greater detail, shows that Healios K.K had debt of JP¥2.05b at the end of September 2024, a reduction from JP¥6.94b over a year. But on the other hand it also has JP¥4.53b in cash, leading to a JP¥2.48b net cash position.

How Healthy Is Healios K.K's Balance Sheet?

According to the last reported balance sheet, Healios K.K had liabilities of JP¥3.97b due within 12 months, and liabilities of JP¥7.03b due beyond 12 months. Offsetting this, it had JP¥4.53b in cash and JP¥123.0m in receivables that were due within 12 months. So it has liabilities totalling JP¥6.35b more than its cash and near-term receivables, combined.

Healios K.K has a market capitalization of JP¥16.2b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Healios K.K also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Healios K.K'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.

In the last year Healios K.K wasn't profitable at an EBIT level, but managed to grow its revenue by 216%, to JP¥549m. When it comes to revenue growth, that's like nailing the game winning 3-pointer!

So How Risky Is Healios K.K?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Healios K.K lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through JP¥2.6b of cash and made a loss of JP¥6.2b. But at least it has JP¥2.48b on the balance sheet to spend on growth, near-term. The good news for shareholders is that Healios K.K has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. 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. For example, we've discovered 4 warning signs for Healios K.K that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.