Is Cyfuse Biomedical K.K (TSE:4892) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Cyfuse Biomedical K.K. (TSE:4892) makes use of debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for Cyfuse Biomedical K.K

How Much Debt Does Cyfuse Biomedical K.K Carry?

As you can see below, Cyfuse Biomedical K.K had JP¥799.0m of debt, at September 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has JP¥3.19b in cash to offset that, meaning it has JP¥2.39b net cash.

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

According to the last reported balance sheet, Cyfuse Biomedical K.K had liabilities of JP¥599.0m due within 12 months, and liabilities of JP¥332.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥3.19b as well as receivables valued at JP¥50.0m due within 12 months. So it actually has JP¥2.30b more liquid assets than total liabilities.

This surplus liquidity suggests that Cyfuse Biomedical K.K's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. 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. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Cyfuse Biomedical K.K will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Cyfuse Biomedical K.K made a loss at the EBIT level, and saw its revenue drop to JP¥58m, which is a fall of 7.9%. That's not what we would hope to see.

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¥633m of cash and made a loss of JP¥719m. But the saving grace is the JP¥2.39b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. 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. 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. Case in point: We've spotted 4 warning signs for Cyfuse Biomedical K.K you should be aware of, and 2 of them shouldn't be ignored.

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.

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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.