We Think TWOSTONE&Sons (TSE:7352) Can Manage Its Debt With Ease

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 TWOSTONE&Sons Inc. (TSE:7352) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is TWOSTONE&Sons's Debt?

You can click the graphic below for the historical numbers, but it shows that as of August 2025 TWOSTONE&Sons had JP¥3.64b of debt, an increase on JP¥1.97b, over one year. However, it does have JP¥4.56b in cash offsetting this, leading to net cash of JP¥920.0m.

How Strong Is TWOSTONE&Sons' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TWOSTONE&Sons had liabilities of JP¥3.93b due within 12 months and liabilities of JP¥2.55b due beyond that. Offsetting this, it had JP¥4.56b in cash and JP¥2.41b in receivables that were due within 12 months. So it actually has JP¥487.0m more liquid assets than total liabilities.

Having regard to TWOSTONE&Sons' size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the JP¥28.7b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, TWOSTONE&Sons boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for TWOSTONE&Sons

On top of that, TWOSTONE&Sons grew its EBIT by 73% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine TWOSTONE&Sons's ability to maintain a healthy balance sheet going forward. 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 TWOSTONE&Sons 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, TWOSTONE&Sons recorded free cash flow worth a fulsome 89% 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 TWOSTONE&Sons has net cash of JP¥920.0m, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥684m, being 89% of its EBIT. So is TWOSTONE&Sons's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - TWOSTONE&Sons has 1 warning sign we think you should be aware of.

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.