Is Sansan (TSE:4443) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Sansan, Inc. (TSE:4443) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Sansan Carry?

The image below, which you can click on for greater detail, shows that Sansan had debt of JP¥3.78b at the end of February 2025, a reduction from JP¥4.72b over a year. However, its balance sheet shows it holds JP¥23.9b in cash, so it actually has JP¥20.2b net cash.

How Strong Is Sansan's Balance Sheet?

According to the last reported balance sheet, Sansan had liabilities of JP¥19.3b due within 12 months, and liabilities of JP¥3.34b due beyond 12 months. On the other hand, it had cash of JP¥23.9b and JP¥997.0m worth of receivables due within a year. So it can boast JP¥2.28b more liquid assets than total liabilities.

Having regard to Sansan's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the JP¥245.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Simply put, the fact that Sansan has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Sansan

Better yet, Sansan grew its EBIT by 521% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. 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 Sansan 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. Sansan 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 last three years, Sansan actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sansan has JP¥20.2b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 284% of that EBIT to free cash flow, bringing in JP¥3.4b. So is Sansan's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Sansan, you may well want to click here to check an interactive graph of its earnings per share history.

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.