Is freee K.K (TSE:4478) Using Debt Sensibly?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 freee K.K. (TSE:4478) 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?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does freee K.K Carry?

As you can see below, at the end of December 2024, freee K.K had JP¥6.50b of debt, up from JP¥3.25b a year ago. Click the image for more detail. But it also has JP¥30.6b in cash to offset that, meaning it has JP¥24.1b net cash.

How Strong Is freee K.K's Balance Sheet?

We can see from the most recent balance sheet that freee K.K had liabilities of JP¥23.2b falling due within a year, and liabilities of JP¥1.63b due beyond that. Offsetting these obligations, it had cash of JP¥30.6b as well as receivables valued at JP¥2.72b due within 12 months. So it actually has JP¥8.55b more liquid assets than total liabilities.

This surplus suggests that freee K.K has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, freee K.K boasts net cash, so it's fair to say it does not have a heavy debt load! 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 freee K.K 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.

See our latest analysis for freee K.K

Over 12 months, freee K.K reported revenue of JP¥29b, which is a gain of 30%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is freee K.K?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year freee K.K had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through JP¥4.6b of cash and made a loss of JP¥3.1b. While this does make the company a bit risky, it's important to remember it has net cash of JP¥24.1b. That means it could keep spending at its current rate for more than two years. freee K.K's revenue growth shone bright over the last year, so it may well be in a position to turn a profit in due course. Pre-profit companies are often risky, but they can also offer great rewards. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with freee K.K .

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.