These 4 Measures Indicate That Ebara (TSE:6361) Is Using Debt Reasonably Well

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 note that Ebara Corporation (TSE:6361) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Ebara's Net Debt?

As you can see below, Ebara had JP¥148.3b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has JP¥163.8b in cash to offset that, meaning it has JP¥15.4b net cash.

A Look At Ebara's Liabilities

According to the last reported balance sheet, Ebara had liabilities of JP¥379.5b due within 12 months, and liabilities of JP¥121.6b due beyond 12 months. Offsetting these obligations, it had cash of JP¥163.8b as well as receivables valued at JP¥158.1b due within 12 months. So it has liabilities totalling JP¥179.2b more than its cash and near-term receivables, combined.

Given Ebara has a market capitalization of JP¥1.46t, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Ebara also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Ebara

Another good sign is that Ebara has been able to increase its EBIT by 21% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Ebara'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Ebara 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, Ebara's free cash flow amounted to 32% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although Ebara's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of JP¥15.4b. And it impressed us with its EBIT growth of 21% over the last year. So we are not troubled with Ebara'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. Be aware that Ebara is showing 1 warning sign in our investment analysis , you should know about...

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.