Mitsubishi Electric (TSE:6503) Has A Rock Solid 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.' 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 Mitsubishi Electric Corporation (TSE:6503) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Mitsubishi Electric's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Mitsubishi Electric had JP¥338.9b of debt in September 2025, down from JP¥383.7b, one year before. However, its balance sheet shows it holds JP¥862.8b in cash, so it actually has JP¥524.0b net cash.

How Healthy Is Mitsubishi Electric's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Mitsubishi Electric had liabilities of JP¥1.82t due within 12 months and liabilities of JP¥446.5b due beyond that. Offsetting this, it had JP¥862.8b in cash and JP¥931.9b in receivables that were due within 12 months. So it has liabilities totalling JP¥469.1b more than its cash and near-term receivables, combined.

Given Mitsubishi Electric has a humongous market capitalization of JP¥8.64t, 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, Mitsubishi Electric also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Mitsubishi Electric

Also good is that Mitsubishi Electric grew its EBIT at 15% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Mitsubishi Electric 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Mitsubishi Electric 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. During the last three years, Mitsubishi Electric produced sturdy free cash flow equating to 64% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

We could understand if investors are concerned about Mitsubishi Electric's liabilities, but we can be reassured by the fact it has has net cash of JP¥524.0b. So we don't think Mitsubishi Electric's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Mitsubishi Electric, you may well want to click here to check an interactive graph of its earnings per share history.

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.