We Think PKSHA Technology (TSE:3993) Can Manage Its Debt With Ease

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 PKSHA Technology Inc. (TSE:3993) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is PKSHA Technology's Net Debt?

The chart below, which you can click on for greater detail, shows that PKSHA Technology had JP¥4.26b in debt in March 2025; about the same as the year before. However, it does have JP¥16.5b in cash offsetting this, leading to net cash of JP¥12.3b.

How Healthy Is PKSHA Technology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that PKSHA Technology had liabilities of JP¥6.04b due within 12 months and liabilities of JP¥5.55b due beyond that. Offsetting this, it had JP¥16.5b in cash and JP¥2.90b in receivables that were due within 12 months. So it can boast JP¥7.83b more liquid assets than total liabilities.

This short term liquidity is a sign that PKSHA Technology could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, PKSHA Technology boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for PKSHA Technology

In addition to that, we're happy to report that PKSHA Technology has boosted its EBIT by 62%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine PKSHA Technology's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. PKSHA Technology 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. Over the most recent three years, PKSHA Technology recorded free cash flow worth 75% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case PKSHA Technology has JP¥12.3b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 62% over the last year. So we don't think PKSHA Technology's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in PKSHA Technology, you may well want to click here to check an interactive graph of its earnings per share history.

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.