Is Caulis (TSE:153A) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Caulis Inc. (TSE:153A) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Caulis's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Caulis had JP¥250.0m of debt in June 2025, down from JP¥301.0m, one year before. However, its balance sheet shows it holds JP¥1.88b in cash, so it actually has JP¥1.63b net cash.

A Look At Caulis' Liabilities

Zooming in on the latest balance sheet data, we can see that Caulis had liabilities of JP¥645.2m due within 12 months and liabilities of JP¥100.0m due beyond that. Offsetting these obligations, it had cash of JP¥1.88b as well as receivables valued at JP¥61.4m due within 12 months. So it can boast JP¥1.19b more liquid assets than total liabilities.

This short term liquidity is a sign that Caulis could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Caulis boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Caulis

Also positive, Caulis grew its EBIT by 24% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Caulis 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Caulis has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last two years, Caulis produced sturdy free cash flow equating to 78% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Caulis has net cash of JP¥1.63b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥337m, being 78% of its EBIT. So is Caulis's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example Caulis has 2 warning signs (and 1 which is concerning) we think 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.