These 4 Measures Indicate That Kinden (TSE:1944) Is Using Debt Safely

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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, Kinden Corporation (TSE:1944) does carry debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. 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.

How Much Debt Does Kinden Carry?

The chart below, which you can click on for greater detail, shows that Kinden had JP¥14.5b in debt in September 2025; about the same as the year before. But it also has JP¥176.0b in cash to offset that, meaning it has JP¥161.5b net cash.

How Strong Is Kinden's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kinden had liabilities of JP¥181.9b due within 12 months and liabilities of JP¥28.0b due beyond that. Offsetting this, it had JP¥176.0b in cash and JP¥204.9b in receivables that were due within 12 months. So it can boast JP¥171.0b more liquid assets than total liabilities.

This surplus suggests that Kinden has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Kinden has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Kinden

In addition to that, we're happy to report that Kinden has boosted its EBIT by 72%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Kinden's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Kinden 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. Looking at the most recent three years, Kinden recorded free cash flow of 35% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Kinden has net cash of JP¥161.5b, as well as more liquid assets than liabilities. And we liked the look of last year's 72% year-on-year EBIT growth. So we don't think Kinden's use of debt is risky. 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, we've discovered 2 warning signs for Kinden that you should be aware of before investing here.

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.

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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.