Health Check: How Prudently Does WHY HOW DO COMPANY (TSE:3823) Use Debt?

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 THE WHY HOW DO COMPANY, Inc. (TSE:3823) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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.

What Is WHY HOW DO COMPANY's Debt?

The image below, which you can click on for greater detail, shows that WHY HOW DO COMPANY had debt of JP¥353.0m at the end of May 2025, a reduction from JP¥471.0m over a year. But on the other hand it also has JP¥1.01b in cash, leading to a JP¥661.0m net cash position.

How Healthy Is WHY HOW DO COMPANY's Balance Sheet?

We can see from the most recent balance sheet that WHY HOW DO COMPANY had liabilities of JP¥374.0m falling due within a year, and liabilities of JP¥537.0m due beyond that. Offsetting these obligations, it had cash of JP¥1.01b as well as receivables valued at JP¥219.0m due within 12 months. So it can boast JP¥322.0m more liquid assets than total liabilities.

This short term liquidity is a sign that WHY HOW DO COMPANY could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, WHY HOW DO COMPANY boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since WHY HOW DO COMPANY will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for WHY HOW DO COMPANY

In the last year WHY HOW DO COMPANY wasn't profitable at an EBIT level, but managed to grow its revenue by 100%, to JP¥1.5b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is WHY HOW DO COMPANY?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year WHY HOW DO COMPANY had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of JP¥654m and booked a JP¥678m accounting loss. But at least it has JP¥661.0m on the balance sheet to spend on growth, near-term. With very solid revenue growth in the last year, WHY HOW DO COMPANY may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. For instance, we've identified 3 warning signs for WHY HOW DO COMPANY (2 can't be ignored) 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.