Here's Why Core Concept Technologies (TSE:4371) Can Manage Its Debt Responsibly

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 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. We note that Core Concept Technologies Inc. (TSE:4371) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Core Concept Technologies Carry?

As you can see below, at the end of March 2025, Core Concept Technologies had JP¥473.6m of debt, up from JP¥144.0m a year ago. Click the image for more detail. But on the other hand it also has JP¥1.69b in cash, leading to a JP¥1.21b net cash position.

A Look At Core Concept Technologies' Liabilities

The latest balance sheet data shows that Core Concept Technologies had liabilities of JP¥2.80b due within a year, and liabilities of JP¥223.7m falling due after that. Offsetting this, it had JP¥1.69b in cash and JP¥3.44b in receivables that were due within 12 months. So it actually has JP¥2.10b more liquid assets than total liabilities.

This short term liquidity is a sign that Core Concept Technologies could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Core Concept Technologies has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Core Concept Technologies

The good news is that Core Concept Technologies has increased its EBIT by 4.0% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Core Concept Technologies 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Core Concept Technologies may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Core Concept Technologies recorded free cash flow worth 52% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Core Concept Technologies has JP¥1.21b in net cash and a decent-looking balance sheet. So is Core Concept Technologies's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 1 warning sign we've spotted with Core Concept Technologies .

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.