Is Pole To Win Holdings (TSE:3657) Using Debt Sensibly?

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 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. Importantly, Pole To Win Holdings, Inc. (TSE:3657) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Pole To Win Holdings

How Much Debt Does Pole To Win Holdings Carry?

As you can see below, at the end of April 2024, Pole To Win Holdings had JP¥4.83b of debt, up from JP¥3.75b a year ago. Click the image for more detail. But on the other hand it also has JP¥6.56b in cash, leading to a JP¥1.73b net cash position.

How Healthy Is Pole To Win Holdings' Balance Sheet?

According to the last reported balance sheet, Pole To Win Holdings had liabilities of JP¥10.4b due within 12 months, and liabilities of JP¥773.0m due beyond 12 months. Offsetting this, it had JP¥6.56b in cash and JP¥6.70b in receivables that were due within 12 months. So it can boast JP¥2.10b more liquid assets than total liabilities.

This surplus suggests that Pole To Win Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Pole To Win Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Pole To Win Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Pole To Win Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 16%, to JP¥48b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Pole To Win Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Pole To Win Holdings lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of JP¥1.5b and booked a JP¥2.5b accounting loss. Given it only has net cash of JP¥1.73b, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. There's no doubt that we learn most about debt from the balance sheet. 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 2 warning signs for Pole To Win Holdings (of which 1 doesn't sit too well with us!) you should know about.

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.

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