These 4 Measures Indicate That DaisekiLtd (TSE:9793) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Daiseki Co.,Ltd. (TSE:9793) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

How Much Debt Does DaisekiLtd Carry?

The image below, which you can click on for greater detail, shows that at August 2025 DaisekiLtd had debt of JP¥5.68b, up from JP¥5.30b in one year. However, it does have JP¥29.7b in cash offsetting this, leading to net cash of JP¥24.0b.

A Look At DaisekiLtd's Liabilities

We can see from the most recent balance sheet that DaisekiLtd had liabilities of JP¥14.6b falling due within a year, and liabilities of JP¥5.42b due beyond that. Offsetting this, it had JP¥29.7b in cash and JP¥13.9b in receivables that were due within 12 months. So it can boast JP¥23.5b more liquid assets than total liabilities.

This excess liquidity suggests that DaisekiLtd is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, DaisekiLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for DaisekiLtd

DaisekiLtd's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine DaisekiLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. DaisekiLtd may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, DaisekiLtd's free cash flow amounted to 44% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that DaisekiLtd has net cash of JP¥24.0b, as well as more liquid assets than liabilities. So we don't have any problem with DaisekiLtd's use of debt. 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, we've discovered 1 warning sign for DaisekiLtd that you should be aware of before investing here.

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.