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Does BASE FOOD (TSE:2936) Have A Healthy Balance Sheet?

Simply Wall St · 6d ago

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that BASE FOOD Inc. (TSE:2936) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is BASE FOOD's Net Debt?

The image below, which you can click on for greater detail, shows that BASE FOOD had debt of JP¥718.0m at the end of August 2025, a reduction from JP¥1.39b over a year. But on the other hand it also has JP¥1.72b in cash, leading to a JP¥1.00b net cash position.

debt-equity-history-analysis
TSE:2936 Debt to Equity History January 8th 2026

How Healthy Is BASE FOOD's Balance Sheet?

The latest balance sheet data shows that BASE FOOD had liabilities of JP¥2.64b due within a year, and liabilities of JP¥193.0m falling due after that. Offsetting this, it had JP¥1.72b in cash and JP¥968.0m in receivables that were due within 12 months. So its liabilities total JP¥144.0m more than the combination of its cash and short-term receivables.

This state of affairs indicates that BASE FOOD's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the JP¥18.4b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, BASE FOOD boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for BASE FOOD

Although BASE FOOD made a loss at the EBIT level, last year, it was also good to see that it generated JP¥561m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But it is BASE FOOD'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. BASE FOOD 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. Over the most recent year, BASE FOOD recorded free cash flow worth 76% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that BASE FOOD has JP¥1.00b in net cash. And it impressed us with free cash flow of JP¥427m, being 76% of its EBIT. So is BASE FOOD's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that BASE FOOD is showing 1 warning sign in our investment analysis , you should know about...

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.