SpiderPlus (TSE:4192) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, SpiderPlus & Co. (TSE:4192) does carry debt. But should shareholders be worried about its use of debt?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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.

View our latest analysis for SpiderPlus

What Is SpiderPlus's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 SpiderPlus had debt of JP¥815.9m, up from JP¥518.0m in one year. However, its balance sheet shows it holds JP¥2.72b in cash, so it actually has JP¥1.90b net cash.

How Strong Is SpiderPlus' Balance Sheet?

According to the last reported balance sheet, SpiderPlus had liabilities of JP¥1.07b due within 12 months, and liabilities of JP¥423.7m due beyond 12 months. Offsetting this, it had JP¥2.72b in cash and JP¥554.9m in receivables that were due within 12 months. So it can boast JP¥1.78b more liquid assets than total liabilities.

This short term liquidity is a sign that SpiderPlus could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, SpiderPlus 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 future earnings, more than anything, that will determine SpiderPlus's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year SpiderPlus wasn't profitable at an EBIT level, but managed to grow its revenue by 29%, to JP¥3.9b. With any luck the company will be able to grow its way to profitability.

So How Risky Is SpiderPlus?

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 SpiderPlus lost money at the earnings before interest and tax (EBIT) line. Indeed, in that time it burnt through JP¥448m of cash and made a loss of JP¥549m. But the saving grace is the JP¥1.90b on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. SpiderPlus'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. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 2 warning signs we've spotted with SpiderPlus .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.