Does Techfirm Holdings (TSE:3625) Have A Healthy Balance Sheet?

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 Techfirm Holdings Inc. (TSE:3625) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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.

How Much Debt Does Techfirm Holdings Carry?

As you can see below, Techfirm Holdings had JP¥1.10b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds JP¥2.68b in cash, so it actually has JP¥1.58b net cash.

How Healthy Is Techfirm Holdings' Balance Sheet?

According to the last reported balance sheet, Techfirm Holdings had liabilities of JP¥1.49b due within 12 months, and liabilities of JP¥528.0m due beyond 12 months. On the other hand, it had cash of JP¥2.68b and JP¥1.26b worth of receivables due within a year. So it actually has JP¥1.92b more liquid assets than total liabilities.

This luscious liquidity implies that Techfirm Holdings' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Techfirm Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Techfirm Holdings

Even more impressive was the fact that Techfirm Holdings grew its EBIT by 284% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Techfirm Holdings'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Techfirm Holdings 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. In the last two years, Techfirm Holdings's free cash flow amounted to 22% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Techfirm Holdings has JP¥1.58b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 284% over the last year. So we don't think Techfirm Holdings's use of debt is risky. 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. Case in point: We've spotted 2 warning signs for Techfirm Holdings 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.