Is Informetis (TSE:281A) Using Too Much Debt?

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. We note that Informetis Co., Ltd. (TSE:281A) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Informetis's Net Debt?

As you can see below, at the end of March 2025, Informetis had JP¥504.0m of debt, up from JP¥451.0m a year ago. Click the image for more detail. But it also has JP¥718.0m in cash to offset that, meaning it has JP¥214.0m net cash.

A Look At Informetis' Liabilities

We can see from the most recent balance sheet that Informetis had liabilities of JP¥337.0m falling due within a year, and liabilities of JP¥361.0m due beyond that. Offsetting this, it had JP¥718.0m in cash and JP¥52.0m in receivables that were due within 12 months. So it can boast JP¥72.0m more liquid assets than total liabilities.

This surplus suggests that Informetis has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Informetis has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But it is Informetis'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.

See our latest analysis for Informetis

Over 12 months, Informetis made a loss at the EBIT level, and saw its revenue drop to JP¥865m, which is a fall of 7.8%. That's not what we would hope to see.

So How Risky Is Informetis?

While Informetis lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of JP¥14m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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 instance, we've identified 2 warning signs for Informetis (1 is concerning) you should be aware of.

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.