Senshu ElectricLtd (TSE:9824) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Senshu Electric Co.,Ltd. (TSE:9824) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Senshu ElectricLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that Senshu ElectricLtd had JP¥423.0m of debt in January 2025, down from JP¥891.0m, one year before. However, it does have JP¥33.8b in cash offsetting this, leading to net cash of JP¥33.4b.

How Healthy Is Senshu ElectricLtd's Balance Sheet?

The latest balance sheet data shows that Senshu ElectricLtd had liabilities of JP¥55.0b due within a year, and liabilities of JP¥2.95b falling due after that. Offsetting these obligations, it had cash of JP¥33.8b as well as receivables valued at JP¥38.2b due within 12 months. So it can boast JP¥14.0b more liquid assets than total liabilities.

It's good to see that Senshu ElectricLtd has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Senshu ElectricLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Senshu ElectricLtd

And we also note warmly that Senshu ElectricLtd grew its EBIT by 18% last year, making its debt load easier to handle. 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 Senshu ElectricLtd 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 .

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Senshu ElectricLtd 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, Senshu ElectricLtd produced sturdy free cash flow equating to 59% 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

While we empathize with investors who find debt concerning, you should keep in mind that Senshu ElectricLtd has net cash of JP¥33.4b, as well as more liquid assets than liabilities. And we liked the look of last year's 18% year-on-year EBIT growth. So is Senshu ElectricLtd's debt a risk? It doesn't seem so to us. Given Senshu ElectricLtd has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link .

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.

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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.