Is Tsubaki Nakashima (TSE:6464) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 note that Tsubaki Nakashima Co., Ltd. (TSE:6464) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Tsubaki Nakashima's Debt?

As you can see below, Tsubaki Nakashima had JP¥90.5b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. On the flip side, it has JP¥25.3b in cash leading to net debt of about JP¥65.3b.

How Healthy Is Tsubaki Nakashima's Balance Sheet?

We can see from the most recent balance sheet that Tsubaki Nakashima had liabilities of JP¥64.5b falling due within a year, and liabilities of JP¥46.1b due beyond that. Offsetting this, it had JP¥25.3b in cash and JP¥20.2b in receivables that were due within 12 months. So it has liabilities totalling JP¥65.1b more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the JP¥15.3b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Tsubaki Nakashima would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Tsubaki Nakashima will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

View our latest analysis for Tsubaki Nakashima

In the last year Tsubaki Nakashima had a loss before interest and tax, and actually shrunk its revenue by 12%, to JP¥72b. We would much prefer see growth.

Caveat Emptor

Not only did Tsubaki Nakashima's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost JP¥479m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of JP¥1.5b in the last year. So while it's not wise to assume the company will fail, we do think it's risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Tsubaki Nakashima has 2 warning signs we think you should be aware of.

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.

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.