Is Shin Maint HoldingsLtd (TSE:6086) A Risky Investment?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Shin Maint Holdings Co.,Ltd. (TSE:6086) does carry debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

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. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Shin Maint HoldingsLtd's Debt?

As you can see below, at the end of February 2025, Shin Maint HoldingsLtd had JP¥377.0m of debt, up from JP¥347.0m a year ago. Click the image for more detail. However, it does have JP¥4.14b in cash offsetting this, leading to net cash of JP¥3.76b.

How Strong Is Shin Maint HoldingsLtd's Balance Sheet?

The latest balance sheet data shows that Shin Maint HoldingsLtd had liabilities of JP¥4.78b due within a year, and liabilities of JP¥738.0m falling due after that. On the other hand, it had cash of JP¥4.14b and JP¥3.07b worth of receivables due within a year. So it can boast JP¥1.69b more liquid assets than total liabilities.

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

Check out our latest analysis for Shin Maint HoldingsLtd

Another good sign is that Shin Maint HoldingsLtd has been able to increase its EBIT by 22% in twelve months, making it easier to pay down 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 Shin Maint HoldingsLtd 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. Shin Maint HoldingsLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Shin Maint HoldingsLtd recorded free cash flow worth 80% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 Shin Maint HoldingsLtd has net cash of JP¥3.76b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥1.2b, being 80% of its EBIT. So is Shin Maint HoldingsLtd's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Shin Maint HoldingsLtd's earnings per share history for free.

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.