Does AnyMind Group (TSE:5027) Have A Healthy Balance Sheet?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, AnyMind Group Inc. (TSE:5027) does carry debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for AnyMind Group

What Is AnyMind Group's Debt?

As you can see below, at the end of December 2023, AnyMind Group had JP¥316.0m of debt, up from JP¥302.0m a year ago. Click the image for more detail. However, it does have JP¥6.27b in cash offsetting this, leading to net cash of JP¥5.95b.

How Healthy Is AnyMind Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that AnyMind Group had liabilities of JP¥8.84b due within 12 months and liabilities of JP¥815.0m due beyond that. Offsetting these obligations, it had cash of JP¥6.27b as well as receivables valued at JP¥9.74b due within 12 months. So it can boast JP¥6.35b more liquid assets than total liabilities.

This surplus suggests that AnyMind Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that AnyMind Group has more cash than debt is arguably a good indication that it can manage its debt safely.

Better yet, AnyMind Group grew its EBIT by 2,170% last year, which is an impressive improvement. If maintained that growth will make the debt even more manageable in the years ahead. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since AnyMind Group 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. AnyMind Group 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 two years, AnyMind Group produced sturdy free cash flow equating to 77% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that AnyMind Group has net cash of JP¥5.95b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 2,170% over the last year. So we don't think AnyMind Group's use of debt is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - AnyMind Group has 1 warning sign we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.