Nasdaq
华尔街日报Does Stella Pharma (TSE:4888) Have A Healthy Balance Sheet?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Stella Pharma Corporation (TSE:4888) does have debt on its balance sheet. But is this debt a concern to shareholders?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Stella Pharma Carry?
You can click the graphic below for the historical numbers, but it shows that Stella Pharma had JP¥686.0m of debt in September 2025, down from JP¥853.0m, one year before. However, its balance sheet shows it holds JP¥2.80b in cash, so it actually has JP¥2.11b net cash.
How Healthy Is Stella Pharma's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Stella Pharma had liabilities of JP¥287.0m due within 12 months and liabilities of JP¥1.74b due beyond that. Offsetting these obligations, it had cash of JP¥2.80b as well as receivables valued at JP¥623.0m due within 12 months. So it actually has JP¥1.40b more liquid assets than total liabilities.
This excess liquidity suggests that Stella Pharma is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that Stella Pharma has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is Stella Pharma'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.
See our latest analysis for Stella Pharma
Over 12 months, Stella Pharma reported revenue of JP¥992m, which is a gain of 248%, although it did not report any earnings before interest and tax. When it comes to revenue growth, that's like nailing the game winning 3-pointer!
So How Risky Is Stella Pharma?
By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Stella Pharma had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through JP¥735m of cash and made a loss of JP¥179m. While this does make the company a bit risky, it's important to remember it has net cash of JP¥2.11b. That kitty means the company can keep spending for growth for at least two years, at current rates. The good news for shareholders is that Stella Pharma has dazzling revenue growth, so there's a very good chance it can boost its free cash flow in the years to come. High growth pre-profit companies may well be risky, but they can also offer great rewards. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Stella Pharma is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.