Is Happiness and DLtd (TSE:3174) Weighed On By Its Debt Load?

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. As with many other companies Happiness and D Co.,Ltd. (TSE:3174) makes use of debt. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Why Does Debt Bring Risk?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Happiness and DLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that Happiness and DLtd had JP¥3.76b of debt in August 2025, down from JP¥3.96b, one year before. However, because it has a cash reserve of JP¥689.0m, its net debt is less, at about JP¥3.07b.

A Look At Happiness and DLtd's Liabilities

The latest balance sheet data shows that Happiness and DLtd had liabilities of JP¥4.24b due within a year, and liabilities of JP¥1.21b falling due after that. Offsetting this, it had JP¥689.0m in cash and JP¥727.0m in receivables that were due within 12 months. So it has liabilities totalling JP¥4.04b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the JP¥1.55b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Happiness and DLtd would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Happiness and DLtd's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Check out our latest analysis for Happiness and DLtd

Over 12 months, Happiness and DLtd made a loss at the EBIT level, and saw its revenue drop to JP¥8.8b, which is a fall of 18%. That's not what we would hope to see.

Caveat Emptor

Not only did Happiness and DLtd's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Its EBIT loss was a whopping JP¥404m. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of JP¥808m in the last year. So we think this stock is quite risky. We'd prefer to pass. 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 instance, we've identified 2 warning signs for Happiness and DLtd that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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.