These 4 Measures Indicate That Speee (TSE:4499) Is Using Debt Reasonably Well

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Speee, Inc. (TSE:4499) does carry debt. But the real question is whether this debt is making the company risky.

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

What Is Speee's Debt?

The image below, which you can click on for greater detail, shows that Speee had debt of JP¥1.17b at the end of March 2025, a reduction from JP¥2.20b over a year. However, it does have JP¥7.07b in cash offsetting this, leading to net cash of JP¥5.90b.

How Strong Is Speee's Balance Sheet?

According to the last reported balance sheet, Speee had liabilities of JP¥3.82b due within 12 months, and liabilities of JP¥807.0m due beyond 12 months. Offsetting this, it had JP¥7.07b in cash and JP¥3.02b in receivables that were due within 12 months. So it actually has JP¥5.47b more liquid assets than total liabilities.

This excess liquidity suggests that Speee is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Speee boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Speee

Even more impressive was the fact that Speee grew its EBIT by 120% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Speee 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. Speee 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. During the last three years, Speee burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Speee has net cash of JP¥5.90b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 120% over the last year. So is Speee's debt a risk? It doesn't seem so to us. 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 - Speee has 2 warning signs we think 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.