SAKURA Internet (TSE:3778) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 SAKURA Internet Inc. (TSE:3778) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does SAKURA Internet Carry?

As you can see below, at the end of June 2025, SAKURA Internet had JP¥12.0b of debt, up from JP¥8.68b a year ago. Click the image for more detail. But it also has JP¥24.3b in cash to offset that, meaning it has JP¥12.3b net cash.

A Look At SAKURA Internet's Liabilities

The latest balance sheet data shows that SAKURA Internet had liabilities of JP¥37.8b due within a year, and liabilities of JP¥13.4b falling due after that. Offsetting these obligations, it had cash of JP¥24.3b as well as receivables valued at JP¥2.82b due within 12 months. So its liabilities total JP¥24.1b more than the combination of its cash and short-term receivables.

Since publicly traded SAKURA Internet shares are worth a total of JP¥130.4b, 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

Even more impressive was the fact that SAKURA Internet grew its EBIT by 242% over twelve months. That boost will make it even easier to pay down debt going forward. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. SAKURA Internet may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. 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

Although SAKURA Internet's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of JP¥12.3b. And it impressed us with its EBIT growth of 242% over the last year. So we don't have any problem with SAKURA Internet's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - SAKURA Internet has 1 warning sign we think you should be aware of.

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.