These 4 Measures Indicate That Wise HoldingsLtd (TSE:5955) Is Using Debt Safely

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. We note that Wise Holdings Co.,Ltd. (TSE:5955) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Wise HoldingsLtd's Debt?

As you can see below, Wise HoldingsLtd had JP¥1.68b of debt at September 2025, down from JP¥1.85b a year prior. However, it does have JP¥3.55b in cash offsetting this, leading to net cash of JP¥1.87b.

How Strong Is Wise HoldingsLtd's Balance Sheet?

According to the last reported balance sheet, Wise HoldingsLtd had liabilities of JP¥3.17b due within 12 months, and liabilities of JP¥2.52b due beyond 12 months. Offsetting this, it had JP¥3.55b in cash and JP¥2.80b in receivables that were due within 12 months. So it can boast JP¥667.0m more liquid assets than total liabilities.

This surplus suggests that Wise HoldingsLtd has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Wise HoldingsLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Wise HoldingsLtd

In addition to that, we're happy to report that Wise HoldingsLtd has boosted its EBIT by 71%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Wise HoldingsLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Wise HoldingsLtd has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Wise HoldingsLtd produced sturdy free cash flow equating to 55% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Wise HoldingsLtd has net cash of JP¥1.87b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 71% over the last year. So we don't think Wise HoldingsLtd's use of debt is risky. 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 example, we've discovered 2 warning signs for Wise HoldingsLtd (1 is concerning!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.