We Think LibertaLtd (TSE:4935) Has A Fair Chunk Of 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.' 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. We note that Liberta Co.,Ltd. (TSE:4935) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is LibertaLtd's Debt?

The chart below, which you can click on for greater detail, shows that LibertaLtd had JP¥3.85b in debt in June 2025; about the same as the year before. However, because it has a cash reserve of JP¥1.24b, its net debt is less, at about JP¥2.60b.

How Healthy Is LibertaLtd's Balance Sheet?

According to the last reported balance sheet, LibertaLtd had liabilities of JP¥4.24b due within 12 months, and liabilities of JP¥1.37b due beyond 12 months. On the other hand, it had cash of JP¥1.24b and JP¥1.36b worth of receivables due within a year. So its liabilities total JP¥3.01b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because LibertaLtd is worth JP¥12.5b, and thus could probably raise enough capital to shore up 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. There's no doubt that we learn most about debt from the balance sheet. But it is LibertaLtd'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.

View our latest analysis for LibertaLtd

Over 12 months, LibertaLtd reported revenue of JP¥8.7b, which is a gain of 9.7%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, LibertaLtd had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost JP¥24m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of JP¥160m into a profit. So to be blunt we do think it is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 4 warning signs for LibertaLtd you should be aware of, and 3 of them are significant.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.