Is Cyfuse Biomedical K.K (TSE:4892) A Risky Investment?

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. We note that Cyfuse Biomedical K.K. (TSE:4892) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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 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. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for Cyfuse Biomedical K.K

What Is Cyfuse Biomedical K.K's Net Debt?

The chart below, which you can click on for greater detail, shows that Cyfuse Biomedical K.K had JP¥913.0m in debt in December 2023; about the same as the year before. But it also has JP¥3.87b in cash to offset that, meaning it has JP¥2.96b net cash.

How Strong Is Cyfuse Biomedical K.K's Balance Sheet?

The latest balance sheet data shows that Cyfuse Biomedical K.K had liabilities of JP¥666.0m due within a year, and liabilities of JP¥346.0m falling due after that. On the other hand, it had cash of JP¥3.87b and JP¥49.0m worth of receivables due within a year. So it can boast JP¥2.91b more liquid assets than total liabilities.

This surplus strongly suggests that Cyfuse Biomedical K.K has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Cyfuse Biomedical K.K has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Cyfuse Biomedical K.K's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Cyfuse Biomedical K.K had a loss before interest and tax, and actually shrunk its revenue by 84%, to JP¥61m. That makes us nervous, to say the least.

So How Risky Is Cyfuse Biomedical K.K?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Cyfuse Biomedical K.K had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through JP¥581m of cash and made a loss of JP¥589m. But the saving grace is the JP¥2.96b on the balance sheet. That means it could keep spending at its current rate for more than two years. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Cyfuse Biomedical K.K (of which 2 are potentially serious!) 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.