Is Kawata Mfg (TSE:6292) A Risky Investment?

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 note that Kawata Mfg. Co., Ltd. (TSE:6292) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Kawata Mfg's Debt?

You can click the graphic below for the historical numbers, but it shows that Kawata Mfg had JP¥5.98b of debt in June 2025, down from JP¥6.99b, one year before. However, it does have JP¥7.15b in cash offsetting this, leading to net cash of JP¥1.17b.

A Look At Kawata Mfg's Liabilities

The latest balance sheet data shows that Kawata Mfg had liabilities of JP¥6.92b due within a year, and liabilities of JP¥4.35b falling due after that. On the other hand, it had cash of JP¥7.15b and JP¥6.83b worth of receivables due within a year. So it can boast JP¥2.71b more liquid assets than total liabilities.

This excess liquidity is a great indication that Kawata Mfg's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Kawata Mfg boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Kawata Mfg

On the other hand, Kawata Mfg saw its EBIT drop by 5.2% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. But it is Kawata Mfg's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Kawata Mfg 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, Kawata Mfg saw substantial negative free cash flow, in total. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Kawata Mfg has net cash of JP¥1.17b, as well as more liquid assets than liabilities. So we are not troubled with Kawata Mfg's debt use. 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. For instance, we've identified 2 warning signs for Kawata Mfg that you should be aware of.

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.