Health Check: How Prudently Does SpiderPlus (TSE:4192) Use Debt?

Warren Buffett famously said, '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. We can see that SpiderPlus & Co. (TSE:4192) does use debt in its business. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is SpiderPlus's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 SpiderPlus had debt of JP¥1.03b, up from JP¥498.0m in one year. However, its balance sheet shows it holds JP¥2.74b in cash, so it actually has JP¥1.71b net cash.

How Strong Is SpiderPlus' Balance Sheet?

The latest balance sheet data shows that SpiderPlus had liabilities of JP¥1.22b due within a year, and liabilities of JP¥348.1m falling due after that. Offsetting these obligations, it had cash of JP¥2.74b as well as receivables valued at JP¥572.4m due within 12 months. So it can boast JP¥1.75b 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. Succinctly put, SpiderPlus 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 SpiderPlus'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 .

See our latest analysis for SpiderPlus

Over 12 months, SpiderPlus reported revenue of JP¥4.1b, which is a gain of 27%, 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?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that SpiderPlus had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through JP¥419m of cash and made a loss of JP¥772m. While this does make the company a bit risky, it's important to remember it has net cash of JP¥1.71b. 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 1 warning sign for SpiderPlus that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.