These 4 Measures Indicate That Remixpoint (TSE:3825) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Remixpoint, Inc. (TSE:3825) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Remixpoint

How Much Debt Does Remixpoint Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Remixpoint had JP¥483.0m of debt, an increase on none, over one year. But on the other hand it also has JP¥14.8b in cash, leading to a JP¥14.3b net cash position.

How Strong Is Remixpoint's Balance Sheet?

According to the last reported balance sheet, Remixpoint had liabilities of JP¥1.75b due within 12 months, and liabilities of JP¥405.0m due beyond 12 months. Offsetting this, it had JP¥14.8b in cash and JP¥2.89b in receivables that were due within 12 months. So it can boast JP¥15.5b more liquid assets than total liabilities.

This excess liquidity is a great indication that Remixpoint's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Remixpoint has more cash than debt is arguably a good indication that it can manage its debt safely.

It was also good to see that despite losing money on the EBIT line last year, Remixpoint turned things around in the last 12 months, delivering and EBIT of JP¥1.6b. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Remixpoint's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Remixpoint 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. Happily for any shareholders, Remixpoint actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Remixpoint has JP¥14.3b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 155% of that EBIT to free cash flow, bringing in JP¥2.4b. So we don't think Remixpoint's use of debt is risky. 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. Be aware that Remixpoint is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.