Is LedaxLtd (TSE:7602) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Ledax Co.,Ltd. (TSE:7602) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

What Is LedaxLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 LedaxLtd had JP¥633.0m of debt, an increase on JP¥500.0m, over one year. But on the other hand it also has JP¥1.49b in cash, leading to a JP¥854.0m net cash position.

How Strong Is LedaxLtd's Balance Sheet?

According to the last reported balance sheet, LedaxLtd had liabilities of JP¥1.60b due within 12 months, and liabilities of JP¥343.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥1.49b as well as receivables valued at JP¥865.0m due within 12 months. So it can boast JP¥414.0m more liquid assets than total liabilities.

This short term liquidity is a sign that LedaxLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, LedaxLtd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is LedaxLtd'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.

Check out our latest analysis for LedaxLtd

Over 12 months, LedaxLtd made a loss at the EBIT level, and saw its revenue drop to JP¥20b, which is a fall of 2.4%. That's not what we would hope to see.

So How Risky Is LedaxLtd?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And in the last year LedaxLtd had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of JP¥229m and booked a JP¥225m accounting loss. But the saving grace is the JP¥854.0m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. To that end, you should learn about the 3 warning signs we've spotted with LedaxLtd (including 2 which are concerning) .

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.

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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.