Does SpiderPlus (TSE:4192) Have A Healthy Balance Sheet?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies SpiderPlus & Co. (TSE:4192) makes use of debt. But the more important question is: how much risk is that debt creating?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for SpiderPlus

How Much Debt Does SpiderPlus Carry?

The image below, which you can click on for greater detail, shows that at December 2023 SpiderPlus had debt of JP¥499.8m, up from JP¥442.0m in one year. But it also has JP¥2.85b in cash to offset that, meaning it has JP¥2.35b net cash.

How Strong Is SpiderPlus' Balance Sheet?

According to the last reported balance sheet, SpiderPlus had liabilities of JP¥1.02b due within 12 months, and liabilities of JP¥194.0m due beyond 12 months. On the other hand, it had cash of JP¥2.85b and JP¥469.7m worth of receivables due within a year. So it can boast JP¥2.10b more liquid assets than total liabilities.

This surplus suggests that SpiderPlus has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that SpiderPlus has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if SpiderPlus can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, SpiderPlus reported revenue of JP¥3.2b, which is a gain of 29%, 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 SpiderPlus?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year SpiderPlus had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through JP¥414m of cash and made a loss of JP¥463m. But the saving grace is the JP¥2.35b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, SpiderPlus may be on a path to profitability. By investing before those profits, shareholders take on more risk in the hope of bigger rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for SpiderPlus that you should be aware of.

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.