Is Kaizen Platform (TSE:4170) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Kaizen Platform, Inc. (TSE:4170) makes use of debt. But the real question is whether this debt is making the company risky.

We've discovered 3 warning signs about Kaizen Platform. View them for free.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

What Is Kaizen Platform's Debt?

As you can see below, at the end of December 2024, Kaizen Platform had JP¥914.0m of debt, up from JP¥597.0m a year ago. Click the image for more detail. However, its balance sheet shows it holds JP¥2.91b in cash, so it actually has JP¥2.00b net cash.

A Look At Kaizen Platform's Liabilities

We can see from the most recent balance sheet that Kaizen Platform had liabilities of JP¥748.0m falling due within a year, and liabilities of JP¥714.0m due beyond that. Offsetting these obligations, it had cash of JP¥2.91b as well as receivables valued at JP¥642.0m due within 12 months. So it actually has JP¥2.09b more liquid assets than total liabilities.

This luscious liquidity implies that Kaizen Platform's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Kaizen Platform boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Kaizen Platform'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.

See our latest analysis for Kaizen Platform

Over 12 months, Kaizen Platform reported revenue of JP¥4.5b, which is a gain of 4.1%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Kaizen Platform?

While Kaizen Platform lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow JP¥168m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. There's no doubt the next few years will be crucial to how the business matures. 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 example, we've discovered 3 warning signs for Kaizen Platform (1 can't be ignored!) that you should be aware of before investing here.

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.