Is infoNet (TSE:4444) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies infoNet inc. (TSE:4444) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is infoNet's Net Debt?

As you can see below, at the end of June 2025, infoNet had JP¥454.0m of debt, up from JP¥338.0m a year ago. Click the image for more detail. However, it does have JP¥571.0m in cash offsetting this, leading to net cash of JP¥117.0m.

How Healthy Is infoNet's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that infoNet had liabilities of JP¥454.0m due within 12 months and liabilities of JP¥380.0m due beyond that. Offsetting these obligations, it had cash of JP¥571.0m as well as receivables valued at JP¥293.0m due within 12 months. So it can boast JP¥30.0m more liquid assets than total liabilities.

Having regard to infoNet's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the JP¥2.03b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that infoNet has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for infoNet

The modesty of its debt load may become crucial for infoNet if management cannot prevent a repeat of the 39% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since infoNet will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While infoNet 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. Looking at the most recent three years, infoNet recorded free cash flow of 39% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case infoNet has JP¥117.0m in net cash and a decent-looking balance sheet. So we don't have any problem with infoNet's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for infoNet you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.