We Think Sanwa Holdings (TSE:5929) Can Manage Its Debt With Ease

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.' 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 can see that Sanwa Holdings Corporation (TSE:5929) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Sanwa Holdings's Debt?

The chart below, which you can click on for greater detail, shows that Sanwa Holdings had JP¥44.9b in debt in June 2025; about the same as the year before. But it also has JP¥113.6b in cash to offset that, meaning it has JP¥68.7b net cash.

How Strong Is Sanwa Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sanwa Holdings had liabilities of JP¥138.0b due within 12 months and liabilities of JP¥53.5b due beyond that. Offsetting these obligations, it had cash of JP¥113.6b as well as receivables valued at JP¥105.8b due within 12 months. So it can boast JP¥27.9b more liquid assets than total liabilities.

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

See our latest analysis for Sanwa Holdings

Also positive, Sanwa Holdings 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 ultimately the future profitability of the business will decide if Sanwa 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Sanwa 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 most recent three years, Sanwa Holdings recorded free cash flow worth 76% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 Sanwa Holdings has JP¥68.7b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥61b, being 76% of its EBIT. So we don't think Sanwa Holdings's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Sanwa Holdings .

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.