COMSYS Holdings (TSE:1721) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that COMSYS Holdings Corporation (TSE:1721) does use debt in its business. But is this debt a concern to shareholders?

We check all companies for important risks. See what we found for COMSYS Holdings in our free report.

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. If things get really bad, the lenders can take control of the business. 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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is COMSYS Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that COMSYS Holdings had JP¥10.0b of debt in December 2024, down from JP¥19.1b, one year before. But on the other hand it also has JP¥55.9b in cash, leading to a JP¥45.9b 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¥122.8b falling due within a year, and liabilities of JP¥21.8b due beyond that. Offsetting this, it had JP¥55.9b in cash and JP¥153.9b in receivables that were due within 12 months. So it actually has JP¥65.2b more liquid assets than total liabilities.

It's good to see that COMSYS Holdings has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble 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.

Check out our latest analysis for COMSYS Holdings

And we also note warmly that COMSYS Holdings grew its EBIT by 19% last year, making its debt load easier to handle. 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 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While COMSYS Holdings 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. Over the last three years, COMSYS Holdings recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case COMSYS Holdings has JP¥45.9b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 84% of that EBIT to free cash flow, bringing in JP¥30b. So is COMSYS Holdings's debt a risk? It doesn't seem so to us. Given COMSYS Holdings has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.