Does SAKURA Internet (TSE:3778) Have A Healthy Balance Sheet?

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. Importantly, SAKURA Internet Inc. (TSE:3778) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is SAKURA Internet's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 SAKURA Internet had debt of JP¥15.1b, up from JP¥4.77b in one year. However, its balance sheet shows it holds JP¥29.5b in cash, so it actually has JP¥14.4b net cash.

A Look At SAKURA Internet's Liabilities

According to the last reported balance sheet, SAKURA Internet had liabilities of JP¥40.3b due within 12 months, and liabilities of JP¥10.8b due beyond 12 months. On the other hand, it had cash of JP¥29.5b and JP¥7.56b worth of receivables due within a year. So it has liabilities totalling JP¥14.1b more than its cash and near-term receivables, combined.

Since publicly traded SAKURA Internet shares are worth a total of JP¥156.6b, 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. While it does have liabilities worth noting, SAKURA Internet also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for SAKURA Internet

Better yet, SAKURA Internet grew its EBIT by 369% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if SAKURA Internet can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While SAKURA Internet 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. During the last three years, SAKURA Internet burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

We could understand if investors are concerned about SAKURA Internet's liabilities, but we can be reassured by the fact it has has net cash of JP¥14.4b. And we liked the look of last year's 369% year-on-year EBIT growth. So we are not troubled with SAKURA Internet's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for SAKURA Internet you should be aware of, and 1 of them can't be ignored.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.