These 4 Measures Indicate That baudroieinc (TSE:4413) Is Using Debt Safely

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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. We can see that baudroie,inc. (TSE:4413) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is baudroieinc's Debt?

As you can see below, at the end of May 2025, baudroieinc had JP¥1.61b of debt, up from JP¥1.03b a year ago. Click the image for more detail. But it also has JP¥3.74b in cash to offset that, meaning it has JP¥2.14b net cash.

How Strong Is baudroieinc's Balance Sheet?

According to the last reported balance sheet, baudroieinc had liabilities of JP¥2.67b due within 12 months, and liabilities of JP¥1.40b due beyond 12 months. On the other hand, it had cash of JP¥3.74b and JP¥1.61b worth of receivables due within a year. So it actually has JP¥1.29b more liquid assets than total liabilities.

This state of affairs indicates that baudroieinc's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the JP¥99.3b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that baudroieinc has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for baudroieinc

On top of that, baudroieinc grew its EBIT by 49% over the last twelve months, and that growth will make it easier to handle its debt. 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 baudroieinc 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. While baudroieinc has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, baudroieinc produced sturdy free cash flow equating to 74% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case baudroieinc has JP¥2.14b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 49% over the last year. So we don't think baudroieinc's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of baudroieinc's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.