Health Check: How Prudently Does Money Forward (TSE:3994) Use Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Money Forward, Inc. (TSE:3994) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Money Forward

How Much Debt Does Money Forward Carry?

As you can see below, at the end of November 2024, Money Forward had JP¥35.4b of debt, up from JP¥30.4b a year ago. Click the image for more detail. But on the other hand it also has JP¥45.3b in cash, leading to a JP¥9.81b net cash position.

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How Healthy Is Money Forward's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Money Forward had liabilities of JP¥39.5b due within 12 months and liabilities of JP¥22.0b due beyond that. Offsetting this, it had JP¥45.3b in cash and JP¥15.2b in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that Money Forward's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the JP¥241.3b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, Money Forward boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Money Forward'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.

Over 12 months, Money Forward reported revenue of JP¥40b, which is a gain of 33%, although it did not report any earnings before interest and tax. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is Money Forward?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months Money Forward lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through JP¥11b of cash and made a loss of JP¥6.3b. While this does make the company a bit risky, it's important to remember it has net cash of JP¥9.81b. That kitty means the company can keep spending for growth for at least two years, at current rates. Money Forward's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. By investing before those profits, shareholders take on more risk in the hope of bigger 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Money Forward you should know about.

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.