Okuma (TSE:6103) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. We can see that Okuma Corporation (TSE:6103) does use debt in its business. But is this debt a concern to shareholders?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Okuma's Debt?

The image below, which you can click on for greater detail, shows that at June 2025 Okuma had debt of JP¥10.0b, up from JP¥5.00b in one year. However, its balance sheet shows it holds JP¥46.4b in cash, so it actually has JP¥36.4b net cash.

A Look At Okuma's Liabilities

Zooming in on the latest balance sheet data, we can see that Okuma had liabilities of JP¥42.7b due within 12 months and liabilities of JP¥17.2b due beyond that. Offsetting this, it had JP¥46.4b in cash and JP¥31.1b in receivables that were due within 12 months. So it can boast JP¥17.6b more liquid assets than total liabilities.

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

Check out our latest analysis for Okuma

The modesty of its debt load may become crucial for Okuma if management cannot prevent a repeat of the 42% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Okuma can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Okuma 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. In the last three years, Okuma created free cash flow amounting to 13% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Okuma has net cash of JP¥36.4b, as well as more liquid assets than liabilities. So we don't have any problem with Okuma's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Okuma is showing 2 warning signs in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.