FLIGHT SOLUTIONS (TSE:3753) Is Carrying A Fair Bit 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.' 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. We note that FLIGHT SOLUTIONS Inc. (TSE:3753) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for FLIGHT SOLUTIONS

What Is FLIGHT SOLUTIONS's Debt?

As you can see below, FLIGHT SOLUTIONS had JP¥781.0m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had JP¥550.0m in cash, and so its net debt is JP¥231.0m.

How Healthy Is FLIGHT SOLUTIONS' Balance Sheet?

The latest balance sheet data shows that FLIGHT SOLUTIONS had liabilities of JP¥645.0m due within a year, and liabilities of JP¥559.0m falling due after that. Offsetting these obligations, it had cash of JP¥550.0m as well as receivables valued at JP¥300.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥354.0m.

Since publicly traded FLIGHT SOLUTIONS shares are worth a total of JP¥1.92b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is FLIGHT SOLUTIONS'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.

Over 12 months, FLIGHT SOLUTIONS reported revenue of JP¥3.2b, which is a gain of 6.6%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Importantly, FLIGHT SOLUTIONS had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost JP¥104m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled JP¥235m 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. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with FLIGHT SOLUTIONS (including 2 which are a bit unpleasant) .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.