Is Kurogane Kosakusho (TSE:7997) Using Debt Sensibly?

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 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. Importantly, Kurogane Kosakusho Ltd. (TSE:7997) does carry debt. But should shareholders be worried about its use of debt?

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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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Kurogane Kosakusho Carry?

You can click the graphic below for the historical numbers, but it shows that Kurogane Kosakusho had JP¥765.0m of debt in August 2025, down from JP¥900.0m, one year before. But on the other hand it also has JP¥1.08b in cash, leading to a JP¥317.0m net cash position.

How Healthy Is Kurogane Kosakusho's Balance Sheet?

We can see from the most recent balance sheet that Kurogane Kosakusho had liabilities of JP¥1.77b falling due within a year, and liabilities of JP¥1.49b due beyond that. Offsetting these obligations, it had cash of JP¥1.08b as well as receivables valued at JP¥1.80b due within 12 months. So it has liabilities totalling JP¥385.0m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Kurogane Kosakusho has a market capitalization of JP¥1.88b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Kurogane Kosakusho also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Kurogane Kosakusho will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Kurogane Kosakusho

In the last year Kurogane Kosakusho had a loss before interest and tax, and actually shrunk its revenue by 9.5%, to JP¥6.4b. We would much prefer see growth.

So How Risky Is Kurogane Kosakusho?

While Kurogane Kosakusho lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of JP¥320m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Kurogane Kosakusho has 5 warning signs we think you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.