We Think GVA TECHInc (TSE:298A) Has A Fair Chunk Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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 can see that GVA TECH,Inc. (TSE:298A) 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 is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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 GVA TECHInc's Debt?

As you can see below, GVA TECHInc had JP¥407.2m of debt at March 2025, down from JP¥457.6m a year prior. On the flip side, it has JP¥373.8m in cash leading to net debt of about JP¥33.4m.

How Strong Is GVA TECHInc's Balance Sheet?

We can see from the most recent balance sheet that GVA TECHInc had liabilities of JP¥394.4m falling due within a year, and liabilities of JP¥299.1m due beyond that. Offsetting this, it had JP¥373.8m in cash and JP¥83.7m in receivables that were due within 12 months. So it has liabilities totalling JP¥236.0m more than its cash and near-term receivables, combined.

Of course, GVA TECHInc has a market capitalization of JP¥2.29b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. But either way, GVA TECHInc has virtually no net debt, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is GVA TECHInc'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.

See our latest analysis for GVA TECHInc

In the last year GVA TECHInc wasn't profitable at an EBIT level, but managed to grow its revenue by 55%, to JP¥1.3b. Shareholders probably have their fingers crossed that it can grow its way to profits.

Caveat Emptor

While we can certainly appreciate GVA TECHInc's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost a very considerable JP¥511m 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. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled JP¥678m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for GVA TECHInc (1 is concerning!) that you should be aware of before investing here.

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.