So, let’s get straight to it. Legendary fund manager Li Lu once dropped some serious wisdom. He said, ‘The biggest investment risk isn’t price volatility, but whether you’ll suffer a permanent loss of capital.’ When we’re talking risk in a business, we’ve got to start with debt. Too much of it can spell disaster. Tsumura & Co. (TSE:4540) has some debt in the mix. But is it a red flag?

when debt becomes dicey

Debt, when used smartly, can be a jack of all trades. However, when a company struggles to pay it off with new capital or free cash flow, things get tricky. Worst-case scenario, lenders might swoop in and take charge. More often, shareholders get hit with dilution at dirt-cheap prices. Most times though, a company plays its cards right and handles debt to its advantage. To gauge this, we look at cash and debt together.

And speaking of developments in stocks, over here, Trump’s energy push made magic for 15 U.S. stocks.

Tsumura’s net debt situation

If you’re curious, you can check this graphic for the numbers. Fast forward to September 2025, Tsumura clocked JP¥114.9b in debt, up from JP¥71.4b the year before. On the flip side, they’ve got JP¥73.2b in cash, leaving them with net debt around JP¥41.7b.

taking a peek at tsumura’s balance sheet

Recently, Tsumura had liabilities of JP¥103.4b due within a year and another JP¥86.6b beyond that. Offsetting this are JP¥73.2b in cash and JP¥75.3b in short-term receivables. So, liabilities trump cash and receivables by JP¥41.5b. Given their market cap of JP¥311.2b, this isn’t a panic moment, but worth watching.

Take a look at our latest analysis for the lowdown on Tsumura.

Analyzing debt with ebitda

We pit a company’s debt against its earnings power using its net debt to EBITDA ratio and its interest cover—how much EBIT covers interest expenses. Tsumura’s debt is just 0.87 times EBITDA, meaning they could ratchet up leverage pretty easily. Plus, they earned more interest than they paid. Like a pro, they’ve managed to grow EBIT by 17% last year.

what about free cash flow?

Free cash flow pays off debt—not fancy accounting numbers. Over the past three years, Tsumura posted negative free cash flow. Unreliable cash flow makes debt risky, but hopefully, past spending results in future flow.

what we think

Tsumura’s got decent interest cover—a green flag for debt management. However, its conversion of EBIT to free cash flow? Not so warm and fuzzy. Looking at everything, Tsumura’s handling debt well, but keep an eye on those levels. The balance sheet’s crucial, yet risks often lurk beyond those numbers. Speaking of which, there’s 1 warning sign we’ve clocked.

Bottom line? Sometimes it’s a breeze sticking to companies that dodge debt. Check out a list of debt-free growth stocks—free for grabs!

Need to dive deeper into Tsumura’s worth? Our thorough analysis breaks down fair value, risks, and more. Access it here.

Got thoughts on this article or something bugging you? Reach out to us directly or shoot an email to editorial-team (at) simplywallst.com.

This piece by Simply Wall St is all about data-driven insights, not financial advice. Remember, our take might not factor in the latest announcements. Simply Wall St has no stock positions mentioned.

The post Is Investing in Tsumura (TSE:4540) a Risky Move? appeared first on Kingston Global Tokyo Japan.

David Iben once said, “Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.” Makes sense, right? When you’re eyeing up a company, you gotta consider its balance sheet. Why? Because debt is often what drags businesses down. Now, let’s talk about Puma Biotechnology, Inc. (NASDAQ:PBYI). They’ve got some debt. The question is—how worried should the shareholders be?

What is Puma Biotechnology’s Debt?

Take a look: Puma Biotechnology had US$89.1m in debt as of June 2024, which is down from US$99.0m the previous year. They’ve got US$96.8m in cash, though, leaving them with a net cash of US$7.77m.

A Look At Puma Biotechnology’s Liabilities

From their latest balance sheet, Puma Biotechnology had liabilities of US$104.3m due within a year, and US$52.2m due beyond that. Add to that US$96.8m in cash and US$28.1m in receivables due within 12 months. So, they’re looking at total liabilities that are US$31.6m more than their combined cash and near-term receivables.

With a market cap of US$110.4m, they could potentially raise cash to improve their balance sheet, if necessary. It also seems they have more cash than debt, which eases some worries.

When Is Debt A Problem?

Debt becomes a headache when a company struggles to pay it off, either from its own cash flow or by raising capital. Worst case? Bankruptcy. More often, a company might issue shares at rock-bottom prices just to stay afloat, diluting shareholders in the process. Not pretty, right? But debt can also be a useful tool, particularly for capital-heavy businesses. First thing’s first: assess a company’s cash and debt together.

See our latest analysis for Puma Biotechnology.

Summing Up

So here’s the deal: while Puma’s balance sheet isn’t fabulous due to all those liabilities, it’s a plus they’ve got US$7.77m in net cash. Despite this, we’re not entirely comfortable with their declining EBIT, which could make paying off debt trickier.

Interpreting Debt and Future Earnings

Shareholders, heads up. Puma Biotechnology’s EBIT dropped by 27% last year. If that trend continues, paying off debt could be quite the challenge. Balance sheets matter, but future earnings are crucial for maintaining financial health. Interested in future prospects? Check out this free report to see analyst profit forecasts.

Remember, businesses need free cash flow to pay off debt—accounting profits alone won’t cut it. Puma’s free cash flow is 16% of its EBIT over the last three years, which is pretty low. This weak cash conversion hampers their ability to manage debt efficiently.

Key Takeaways

• Debt Levels: Puma Biotechnology’s debt stands at US$89.1m with US$96.8m cash.
• Liabilities and Assets: They have liabilities totaling US$156.5m, with US$124.9m in assets.
• Profitability: Their EBIT has declined by 27% recently, raising concerns.

More Resources

Of course, analyzing debt is essential, but each company has risks beyond the balance sheet. For instance, we’ve uncovered 4 warning signs for Puma Biotechnology (1 is a bit unpleasant!) to check out before you invest.

Prefer stocks without debt? Discover our exclusive list of net cash growth stocks.

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Feedback? Concerns about this content? Reach out to us directly or email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature with commentary based on historical data and analyst forecasts. It’s not financial advice, nor does it recommend buying or selling stocks. Consider your financial situation and objectives before investing. We aim for long-term focused analysis driven by fundamental data. Note, our insights might not include the latest price-sensitive updates or qualitative material. Simply Wall St has no stake in any stocks mentioned.

The post Is Investing in Puma Biotechnology (NASDAQ:PBYI) Risky? appeared first on Kingston Global Tokyo Japan.