Mamezo Digital Holdings (TSE:202A) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Mamezo Digital Holdings Co., Ltd. (TSE:202A) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Mamezo Digital Holdings's Net Debt?

As you can see below, at the end of June 2025, Mamezo Digital Holdings had JP¥300.0m of debt, up from none a year ago. Click the image for more detail. However, it does have JP¥1.43b in cash offsetting this, leading to net cash of JP¥1.13b.

How Strong Is Mamezo Digital Holdings' Balance Sheet?

The latest balance sheet data shows that Mamezo Digital Holdings had liabilities of JP¥1.63b due within a year, and liabilities of JP¥11.9m falling due after that. Offsetting these obligations, it had cash of JP¥1.43b as well as receivables valued at JP¥1.70b due within 12 months. So it can boast JP¥1.49b more liquid assets than total liabilities.

This surplus suggests that Mamezo Digital Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Mamezo Digital Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Mamezo Digital Holdings

And we also note warmly that Mamezo Digital Holdings grew its EBIT by 14% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Mamezo Digital Holdings can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Mamezo Digital Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, Mamezo Digital Holdings's free cash flow amounted to 23% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Mamezo Digital Holdings has net cash of JP¥1.13b, as well as more liquid assets than liabilities. And it also grew its EBIT by 14% over the last year. So we are not troubled with Mamezo Digital Holdings's debt use. Given Mamezo Digital Holdings has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link.

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.