TB Group (TSE:6775) Is Carrying A Fair Bit Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that TB Group Inc. (TSE:6775) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. 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. 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.

What Is TB Group's Net Debt?

As you can see below, TB Group had JP¥365.0m of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has JP¥187.0m in cash leading to net debt of about JP¥178.0m.

A Look At TB Group's Liabilities

We can see from the most recent balance sheet that TB Group had liabilities of JP¥445.0m falling due within a year, and liabilities of JP¥324.0m due beyond that. Offsetting this, it had JP¥187.0m in cash and JP¥181.0m in receivables that were due within 12 months. So its liabilities total JP¥401.0m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because TB Group is worth JP¥1.66b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is TB Group's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot .

See our latest analysis for TB Group

In the last year TB Group had a loss before interest and tax, and actually shrunk its revenue by 5.9%, to JP¥2.2b. That's not what we would hope to see.

Caveat Emptor

Importantly, TB Group had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping JP¥243m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through JP¥206m of cash over the last year. So in short it's a really risky stock. 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. We've identified 3 warning signs with TB Group (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

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.