Aidma Holdings (TSE:7373) Has A Rock Solid Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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 can see that Aidma Holdings, Inc. (TSE:7373) does use debt in its business. But is this debt a concern to shareholders?

We've discovered 1 warning sign about Aidma Holdings. View them for free.

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Aidma Holdings's Net Debt?

As you can see below, Aidma Holdings had JP¥484.0m of debt at February 2025, down from JP¥624.0m a year prior. But it also has JP¥5.94b in cash to offset that, meaning it has JP¥5.45b net cash.

How Healthy Is Aidma Holdings' Balance Sheet?

We can see from the most recent balance sheet that Aidma Holdings had liabilities of JP¥3.36b falling due within a year, and liabilities of JP¥116.0m due beyond that. Offsetting these obligations, it had cash of JP¥5.94b as well as receivables valued at JP¥1.17b due within 12 months. So it actually has JP¥3.63b more liquid assets than total liabilities.

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

See our latest analysis for Aidma Holdings

In addition to that, we're happy to report that Aidma Holdings has boosted its EBIT by 33%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Aidma Holdings 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Aidma Holdings 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 most recent three years, Aidma Holdings recorded free cash flow worth 76% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Aidma Holdings has JP¥5.45b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 33% over the last year. So we don't think Aidma Holdings's use of debt is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Aidma Holdings you should know about.

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.