COMSYS Holdings (TSE:1721) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, COMSYS Holdings Corporation (TSE:1721) does carry debt. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for COMSYS Holdings

What Is COMSYS Holdings's Debt?

The chart below, which you can click on for greater detail, shows that COMSYS Holdings had JP¥4.01b in debt in June 2024; about the same as the year before. But on the other hand it also has JP¥82.0b in cash, leading to a JP¥77.9b net cash position.

A Look At COMSYS Holdings' Liabilities

We can see from the most recent balance sheet that COMSYS Holdings had liabilities of JP¥103.9b falling due within a year, and liabilities of JP¥21.7b due beyond that. Offsetting this, it had JP¥82.0b in cash and JP¥121.7b in receivables that were due within 12 months. So it can boast JP¥78.0b more liquid assets than total liabilities.

This surplus suggests that COMSYS Holdings is using debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that COMSYS Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

On top of that, COMSYS Holdings grew its EBIT by 35% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if COMSYS Holdings 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. COMSYS Holdings may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, COMSYS Holdings produced sturdy free cash flow equating to 67% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case COMSYS Holdings has JP¥77.9b in net cash and a decent-looking balance sheet. And we liked the look of last year's 35% year-on-year EBIT growth. So we don't think COMSYS Holdings's use of debt is risky. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check COMSYS Holdings's dividend history, without delay!

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.