Is Matsumoto (TSE:7901) Using Debt Sensibly?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Matsumoto Inc. (TSE:7901) does use debt in its business. But the more important question is: how much risk is that debt creating?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Matsumoto's Debt?

The image below, which you can click on for greater detail, shows that at July 2025 Matsumoto had debt of JP¥444.0m, up from JP¥228.0m in one year. On the flip side, it has JP¥233.0m in cash leading to net debt of about JP¥211.0m.

A Look At Matsumoto's Liabilities

According to the last reported balance sheet, Matsumoto had liabilities of JP¥868.0m due within 12 months, and liabilities of JP¥552.0m due beyond 12 months. Offsetting these obligations, it had cash of JP¥233.0m as well as receivables valued at JP¥276.0m due within 12 months. So it has liabilities totalling JP¥911.0m more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of JP¥1.04b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Matsumoto's earnings that will influence how the balance sheet holds up in the future. 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.

Check out our latest analysis for Matsumoto

Over 12 months, Matsumoto made a loss at the EBIT level, and saw its revenue drop to JP¥2.1b, which is a fall of 2.6%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Matsumoto produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable JP¥235m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through JP¥189m of cash over the last year. So in short it's a really risky stock. 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 2 warning signs for Matsumoto 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.