Legfinishary fund manager Li Lu (who Charlie Munger backed) once declared, ‘The largegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it seems the smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess how risky a company is. As with many other companies i-plug,Inc. (TSE:4177) builds utilize of debt. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things obtain really bad, the lfinishers can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to obtain debt under control. Having declared that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business utilizes is to see at its cash and debt toobtainher.
What Is i-plugInc’s Debt?
The image below, which you can click on for greater detail, displays that i-plugInc had debt of JP¥254.0m at the finish of September 2025, a reduction from JP¥634.0m over a year. However, it does have JP¥3.36b in cash offsetting this, leading to net cash of JP¥3.11b.
How Healthy Is i-plugInc’s Balance Sheet?
According to the last reported balance sheet, i-plugInc had liabilities of JP¥3.91b due within 12 months, and liabilities of JP¥91.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥3.36b as well as receivables valued at JP¥216.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥423.0m.
Given i-plugInc has a market capitalization of JP¥6.17b, it’s hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommfinish shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, i-plugInc also has more cash than debt, so we’re pretty confident it can manage its debt safely.
Check out our latest analysis for i-plugInc
On the other hand, i-plugInc’s EBIT dived 16%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. There’s no doubt that we learn most about debt from the balance sheet. But it is i-plugInc’s earnings that will influence how the balance sheet holds up in the future. So when considering debt, it’s definitely worth seeing at the earnings trfinish. Click here for an interactive snapshot.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it requireds cold hard cash. While i-plugInc has net cash on its balance sheet, it’s still worth taking a see at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to assist us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, i-plugInc actually produced more free cash flow than EBIT over the last two years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Summing Up
While it is always sensible to see at a company’s total liabilities, it is very reassuring that i-plugInc has JP¥3.11b in net cash. And it impressed us with free cash flow of JP¥734m, being 139% of its EBIT. So we are not troubled with i-plugInc’s debt utilize. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we’ve identified 2 warning signs for i-plugInc that you should be aware of.
If, after all that, you’re more interested in a quick 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 applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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