Would TripleizeLtd (TSE:5026) Be Better Off With Less Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Tripleize Co.,Ltd. (TSE:5026) makes use of debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for TripleizeLtd

What Is TripleizeLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of November 2023 TripleizeLtd had JP¥2.21b of debt, an increase on JP¥319.0m, over one year. However, because it has a cash reserve of JP¥1.79b, its net debt is less, at about JP¥424.0m.

How Healthy Is TripleizeLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TripleizeLtd had liabilities of JP¥2.29b due within 12 months and liabilities of JP¥1.42b due beyond that. Offsetting these obligations, it had cash of JP¥1.79b as well as receivables valued at JP¥294.0m due within 12 months. So it has liabilities totalling JP¥1.62b more than its cash and near-term receivables, combined.

This deficit isn't so bad because TripleizeLtd is worth JP¥5.97b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is TripleizeLtd'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.

Over 12 months, TripleizeLtd reported revenue of JP¥2.7b, which is a gain of 14%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months TripleizeLtd produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at JP¥333m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through JP¥387m of cash over the last year. So suffice it to say we consider the stock very risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 4 warning signs for TripleizeLtd (1 makes us a bit uncomfortable) you should be aware of.

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.

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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.