These 4 Measures Indicate That freee K.K (TSE:4478) Is Using Debt Reasonably Well
Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, freee K.K. (TSE:4478) does carry debt. But should shareholders be worried about its use of debt?
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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is freee K.K's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2025 freee K.K had JP¥9.60b of debt, an increase on JP¥4.70b, over one year. However, it does have JP¥36.7b in cash offsetting this, leading to net cash of JP¥27.1b.
How Strong Is freee K.K's Balance Sheet?
The latest balance sheet data shows that freee K.K had liabilities of JP¥31.3b due within a year, and liabilities of JP¥1.62b falling due after that. Offsetting this, it had JP¥36.7b in cash and JP¥3.59b in receivables that were due within 12 months. So it can boast JP¥7.40b more liquid assets than total liabilities.
This short term liquidity is a sign that freee K.K could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, freee K.K boasts net cash, so it's fair to say it does not have a heavy debt load!
View our latest analysis for freee K.K
Although freee K.K made a loss at the EBIT level, last year, it was also good to see that it generated JP¥611m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine freee K.K's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. freee K.K 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 year, freee K.K burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that freee K.K has net cash of JP¥27.1b, as well as more liquid assets than liabilities. So we are not troubled with freee K.K's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that freee K.K is showing 1 warning sign in our investment analysis , you should know about...
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
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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.