Is Cyfuse Biomedical KK (TSE:4892) Taking Too Much Debt?

David Iben summed it up when he said, “Volatility is not a risk we care about. We care about avoiding permanent loss of capital.” So it seems that smart people know that debt – the usually accompanied by bankruptcies – a very important factor when assessing the risk of a company. As with many other companies Cyfuse Biomedical KK (TSE:4892) uses debt. But should shareholders be concerned about the use of debt?

When is debt a problem?

Debt is a tool that helps companies grow. However, if a company is unable to repay its lenders, it is at their mercy. If the company can’t meet its legal obligations to pay down debt, shareholders could end up with nothing. However, a more common (but still painful) scenario involves having to raise new equity capital at a low price, resulting in permanent shareholder dilution. However, as a replacement for dilution, debt can be an extremely good tool for companies that need capital to invest in growth at high returns. When we think about a company’s use of debt, we first consider cash and debt together.

Check out our latest analysis for Cyfuse Biomedical KK

How much debt does Cyfuse Biomedical KK have?

As you can see below, Cyfuse Biomedical KK had JP¥799.0m of debt as of September 2024, which is about the same as the year before. For more details you can click on the chart. But it also has JP¥3.19b in cash to offset this, meaning it has JP¥2.39b net cash.

How strong is Cyfuse Biomedical KK’s balance sheet?

According to the last reported balance sheet, Cyfuse Biomedical KK had liabilities of JP¥599.0m due within 12 months, and liabilities of JP¥332.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥3.19b as well as receivables valued at JP¥50.0m due within 12 months. So it actually has JP¥2.30 billion more liquid assets than total liabilities.

This excess liquidity suggests that Cyfuse Biomedical KK’s balance sheet could take a hit just as well as Homer Simpson’s head. Given this fact, we believe the company’s balance sheet is as strong as an ox. Simply put, the fact that Cyfuse Biomedical KK has more cash than debt is probably a good indication that the company can manage its debt safely. There is no doubt that the balance sheet is where we learn the most about debt. But you can’t look at debt in complete isolation; as Cyfuse Biomedical KK needs revenue to service this debt. So when thinking about debt, it’s definitely worth taking a look at earnings performance. Click here for an interactive snapshot.

Over a 12-month period, Cyfuse Biomedical KK made a loss at the EBIT level and saw revenue fall to JP¥58m, a decline of 7.9%. That’s not what we would want.

How risky is Cyfuse Biomedical KK?

By nature, companies that lose money are riskier than those with a long track record. And we note that Cyfuse Biomedical KK lost earnings before interest and tax (EBIT) last year. In fact, the company burned through JP¥633 million in cash and made a loss of JP¥719 million during that time. The saving grace, however, is the JP¥2.39 billion on the balance sheet. This amount means the company can sustain growth spending at current rates for at least two years. Even if the balance sheet appears to be sufficiently liquid, debt always makes us a little nervous when a company isn’t generating regular free cash flow. The balance sheet is clearly the area you should focus on when analyzing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We discovered it 4 warning signs for Cyfuse Biomedical KK You should be aware of these, and two of them should not be ignored.

If you’re the kind of investor who prefers buying stocks without the burden of debt, then don’t hesitate to explore our exclusive list of net cash growth stocks today.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.