These 4 Measures Indicate That C.E.Management Integrated LaboratoryLtd (TSE:6171) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that C.E.Management Integrated Laboratory Co.Ltd (TSE:6171) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does C.E.Management Integrated LaboratoryLtd Carry?

As you can see below, C.E.Management Integrated LaboratoryLtd had JP¥452.1m of debt at September 2025, down from JP¥549.0m a year prior. However, it does have JP¥2.25b in cash offsetting this, leading to net cash of JP¥1.79b.

How Strong Is C.E.Management Integrated LaboratoryLtd's Balance Sheet?

According to the last reported balance sheet, C.E.Management Integrated LaboratoryLtd had liabilities of JP¥1.21b due within 12 months, and liabilities of JP¥852.1m due beyond 12 months. On the other hand, it had cash of JP¥2.25b and JP¥1.25b worth of receivables due within a year. So it can boast JP¥1.43b more liquid assets than total liabilities.

This surplus suggests that C.E.Management Integrated LaboratoryLtd is using debt in a way that is appears to be both safe and conservative. Due to its strong net asset position, it is not likely to face issues with its lenders. Simply put, the fact that C.E.Management Integrated LaboratoryLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for C.E.Management Integrated LaboratoryLtd

And we also note warmly that C.E.Management Integrated LaboratoryLtd grew its EBIT by 10% last year, making its debt load easier to handle. 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 C.E.Management Integrated LaboratoryLtd 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While C.E.Management Integrated LaboratoryLtd 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. Over the last three years, C.E.Management Integrated LaboratoryLtd recorded free cash flow worth a fulsome 94% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that C.E.Management Integrated LaboratoryLtd has net cash of JP¥1.79b, as well as more liquid assets than liabilities. The cherry on top was that in converted 94% of that EBIT to free cash flow, bringing in JP¥262m. So is C.E.Management Integrated LaboratoryLtd's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that C.E.Management Integrated LaboratoryLtd is showing 2 warning signs in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.