Toyota Boshoku (TSE:3116) Seems To Use Debt Rather Sparingly

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 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 Toyota Boshoku Corporation (TSE:3116) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Toyota Boshoku Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Toyota Boshoku had JP¥177.5b of debt, an increase on JP¥167.6b, over one year. However, it does have JP¥249.6b in cash offsetting this, leading to net cash of JP¥72.1b.

How Strong Is Toyota Boshoku's Balance Sheet?

We can see from the most recent balance sheet that Toyota Boshoku had liabilities of JP¥390.8b falling due within a year, and liabilities of JP¥207.7b due beyond that. Offsetting this, it had JP¥249.6b in cash and JP¥287.7b in receivables that were due within 12 months. So it has liabilities totalling JP¥61.1b more than its cash and near-term receivables, combined.

Given Toyota Boshoku has a market capitalization of JP¥425.9b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Toyota Boshoku boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Toyota Boshoku

Also good is that Toyota Boshoku grew its EBIT at 20% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Toyota Boshoku can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Toyota Boshoku 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, Toyota Boshoku generated free cash flow amounting to a very robust 94% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

Although Toyota Boshoku's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of JP¥72.1b. And it impressed us with free cash flow of JP¥56b, being 94% of its EBIT. So is Toyota Boshoku's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Toyota Boshoku has 3 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.