ForsideLtd (TSE:2330) Seems To Use Debt Rather Sparingly

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.' 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. As with many other companies Forside Co.,Ltd. (TSE:2330) makes use of debt. But the real question is whether this debt is making the company risky.

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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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does ForsideLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 ForsideLtd had JP¥740.0m of debt, an increase on JP¥494.0m, over one year. But on the other hand it also has JP¥2.28b in cash, leading to a JP¥1.54b net cash position.

How Strong Is ForsideLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that ForsideLtd had liabilities of JP¥2.11b due within 12 months and liabilities of JP¥544.0m due beyond that. On the other hand, it had cash of JP¥2.28b and JP¥1.41b worth of receivables due within a year. So it actually has JP¥1.04b more liquid assets than total liabilities.

This surplus suggests that ForsideLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, ForsideLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for ForsideLtd

It was also good to see that despite losing money on the EBIT line last year, ForsideLtd turned things around in the last 12 months, delivering and EBIT of JP¥307m. There's no doubt that we learn most about debt from the balance sheet. But it is ForsideLtd'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. ForsideLtd 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. Over the last year, ForsideLtd actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case ForsideLtd has JP¥1.54b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 301% of that EBIT to free cash flow, bringing in JP¥924m. So is ForsideLtd's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for ForsideLtd (of which 1 can't be ignored!) 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.