Is Earth InfinityLtd (TSE:7692) A Risky Investment?

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. We note that Earth Infinity Co.Ltd. (TSE:7692) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Earth InfinityLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of July 2025 Earth InfinityLtd had JP¥959.0m of debt, an increase on JP¥885.0m, over one year. However, it does have JP¥880.0m in cash offsetting this, leading to net debt of about JP¥79.0m.

How Strong Is Earth InfinityLtd's Balance Sheet?

According to the last reported balance sheet, Earth InfinityLtd had liabilities of JP¥1.38b due within 12 months, and liabilities of JP¥480.0m due beyond 12 months. On the other hand, it had cash of JP¥880.0m and JP¥1.41b worth of receivables due within a year. So it can boast JP¥437.0m more liquid assets than total liabilities.

This short term liquidity is a sign that Earth InfinityLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. But either way, Earth InfinityLtd has virtually no net debt, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Earth InfinityLtd

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Earth InfinityLtd has a low net debt to EBITDA ratio of only 0.11. And its EBIT covers its interest expense a whopping 77.4 times over. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Even more impressive was the fact that Earth InfinityLtd grew its EBIT by 151% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is Earth InfinityLtd'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, Earth InfinityLtd produced sturdy free cash flow equating to 59% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

Happily, Earth InfinityLtd's impressive interest cover implies it has the upper hand on its debt. And the good news does not stop there, as its EBIT growth rate also supports that impression! We would also note that Electric Utilities industry companies like Earth InfinityLtd commonly do use debt without problems. It looks Earth InfinityLtd has no trouble standing on its own two feet, and it has no reason to fear its lenders. To our minds it has a healthy happy balance sheet. 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. To that end, you should be aware of the 2 warning signs we've spotted with Earth InfinityLtd .

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.