Is MonotaRO (TSE:3064) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that MonotaRO Co., Ltd. (TSE:3064) does use debt in its business. But the real question is whether this debt is making the company risky.

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

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is MonotaRO's Debt?

You can click the graphic below for the historical numbers, but it shows that MonotaRO had JP¥406.0m of debt in March 2025, down from JP¥2.93b, one year before. However, it does have JP¥29.5b in cash offsetting this, leading to net cash of JP¥29.1b.

How Healthy Is MonotaRO's Balance Sheet?

According to the last reported balance sheet, MonotaRO had liabilities of JP¥36.0b due within 12 months, and liabilities of JP¥4.34b due beyond 12 months. Offsetting these obligations, it had cash of JP¥29.5b as well as receivables valued at JP¥44.0b due within 12 months. So it can boast JP¥33.1b more liquid assets than total liabilities.

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

Check out our latest analysis for MonotaRO

Also positive, MonotaRO grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine MonotaRO'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. MonotaRO 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, MonotaRO produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that MonotaRO has net cash of JP¥29.1b, as well as more liquid assets than liabilities. And we liked the look of last year's 21% year-on-year EBIT growth. So we don't think MonotaRO's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in MonotaRO, you may well want to click here to check an interactive graph of its earnings per share history.

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.