These 4 Measures Indicate That Focus Systems (TSE:4662) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Focus Systems Corporation (TSE:4662) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Focus Systems Carry?

The image below, which you can click on for greater detail, shows that Focus Systems had debt of JP¥1.87b at the end of March 2025, a reduction from JP¥2.31b over a year. However, its balance sheet shows it holds JP¥6.51b in cash, so it actually has JP¥4.64b net cash.

How Strong Is Focus Systems' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Focus Systems had liabilities of JP¥5.91b due within 12 months and liabilities of JP¥938.7m due beyond that. Offsetting these obligations, it had cash of JP¥6.51b as well as receivables valued at JP¥6.72b due within 12 months. So it can boast JP¥6.38b more liquid assets than total liabilities.

This luscious liquidity implies that Focus Systems' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Focus Systems has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Focus Systems

And we also note warmly that Focus Systems grew its EBIT by 12% last year, making its debt load easier to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Focus Systems's earnings that will influence how the balance sheet holds up in the future. 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Focus Systems 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. Over the most recent two years, Focus Systems recorded free cash flow worth 60% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Focus Systems has JP¥4.64b in net cash and a decent-looking balance sheet. So is Focus Systems'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 instance, we've identified 2 warning signs for Focus Systems that you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.