These 4 Measures Indicate That kubell (TSE:4448) Is Using Debt Safely

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that kubell Co., Ltd. (TSE:4448) does use debt in its business. But should shareholders be worried about its use of debt?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

When Is Debt Dangerous?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does kubell Carry?

As you can see below, kubell had JP¥1.04b of debt at June 2025, down from JP¥1.27b a year prior. However, it does have JP¥3.30b in cash offsetting this, leading to net cash of JP¥2.26b.

How Strong Is kubell's Balance Sheet?

According to the last reported balance sheet, kubell had liabilities of JP¥3.80b due within 12 months, and liabilities of JP¥493.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥3.30b as well as receivables valued at JP¥298.0m due within 12 months. So its liabilities total JP¥700.0m more than the combination of its cash and short-term receivables.

Of course, kubell has a market capitalization of JP¥17.0b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, kubell boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for kubell

It was also good to see that despite losing money on the EBIT line last year, kubell turned things around in the last 12 months, delivering and EBIT of JP¥217m. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since kubell will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. kubell 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. Happily for any shareholders, kubell actually produced more free cash flow than EBIT over the last year. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about kubell's liabilities, but we can be reassured by the fact it has has net cash of JP¥2.26b. The cherry on top was that in converted 278% of that EBIT to free cash flow, bringing in JP¥603m. So we don't think kubell's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for kubell you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.