Does Japan Data Science ConsortiumLtd (TSE:4418) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Japan Data Science Consortium Co.Ltd. (TSE:4418) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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, 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.

Check out our latest analysis for Japan Data Science ConsortiumLtd

How Much Debt Does Japan Data Science ConsortiumLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Japan Data Science ConsortiumLtd had JP¥1.65b of debt, an increase on JP¥12.0m, over one year. But it also has JP¥2.30b in cash to offset that, meaning it has JP¥651.0m net cash.

How Healthy Is Japan Data Science ConsortiumLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Japan Data Science ConsortiumLtd had liabilities of JP¥2.42b due within 12 months and liabilities of JP¥1.83b due beyond that. On the other hand, it had cash of JP¥2.30b and JP¥2.71b worth of receivables due within a year. So it actually has JP¥763.0m more liquid assets than total liabilities.

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

Japan Data Science ConsortiumLtd grew its EBIT by 6.0% in the last year. Whilst that hardly knocks our socks off it is a positive when it comes to debt. 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 Japan Data Science ConsortiumLtd can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Japan Data Science ConsortiumLtd 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 two years, Japan Data Science ConsortiumLtd burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Japan Data Science ConsortiumLtd has net cash of JP¥651.0m, as well as more liquid assets than liabilities. And it also grew its EBIT by 6.0% over the last year. So we are not troubled with Japan Data Science ConsortiumLtd's debt use. 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. For example, we've discovered 4 warning signs for Japan Data Science ConsortiumLtd that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.