Does Aisan Industry (TSE:7283) Have A Healthy Balance Sheet?

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.' 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 Aisan Industry Co., Ltd. (TSE:7283) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Aisan Industry Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Aisan Industry had JP¥56.4b of debt, an increase on JP¥41.9b, over one year. However, its balance sheet shows it holds JP¥77.2b in cash, so it actually has JP¥20.8b net cash.

How Strong Is Aisan Industry's Balance Sheet?

We can see from the most recent balance sheet that Aisan Industry had liabilities of JP¥84.7b falling due within a year, and liabilities of JP¥74.9b due beyond that. On the other hand, it had cash of JP¥77.2b and JP¥37.7b worth of receivables due within a year. So its liabilities total JP¥44.7b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Aisan Industry has a market capitalization of JP¥125.5b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Aisan Industry boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Aisan Industry

On the other hand, Aisan Industry saw its EBIT drop by 7.4% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Aisan Industry's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Aisan Industry 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, Aisan Industry generated free cash flow amounting to a very robust 98% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While Aisan Industry does have more liabilities than liquid assets, it also has net cash of JP¥20.8b. The cherry on top was that in converted 98% of that EBIT to free cash flow, bringing in JP¥7.9b. So we don't have any problem with Aisan Industry's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Aisan Industry that you should be aware of.

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.