We Think JINJIBLtd (TSE:142A) Can Stay On Top Of Its Debt

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.' 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. As with many other companies JINJIB Co.,Ltd. (TSE:142A) makes use of debt. But the more important question is: how much risk is that debt creating?

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

What Is JINJIBLtd's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2025 JINJIBLtd had debt of JP¥514.0m, up from JP¥415.0m in one year. But it also has JP¥1.55b in cash to offset that, meaning it has JP¥1.04b net cash.

How Healthy Is JINJIBLtd's Balance Sheet?

We can see from the most recent balance sheet that JINJIBLtd had liabilities of JP¥1.22b falling due within a year, and liabilities of JP¥342.0m due beyond that. Offsetting this, it had JP¥1.55b in cash and JP¥81.0m in receivables that were due within 12 months. So it can boast JP¥69.0m more liquid assets than total liabilities.

This short term liquidity is a sign that JINJIBLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that JINJIBLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for JINJIBLtd

It is just as well that JINJIBLtd's load is not too heavy, because its EBIT was down 25% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But it is JINJIBLtd'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While JINJIBLtd 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, JINJIBLtd produced sturdy free cash flow equating to 50% 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 JINJIBLtd has net cash of JP¥1.04b, as well as more liquid assets than liabilities. So we are not troubled with JINJIBLtd's debt use. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 3 warning signs for JINJIBLtd you should be aware of, and 2 of them don't sit too well with us.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.