Here's Why Asaka Industrial (TSE:5962) Has A Meaningful Debt Burden

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. As with many other companies Asaka Industrial Co., Ltd. (TSE:5962) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Asaka Industrial's Debt?

The chart below, which you can click on for greater detail, shows that Asaka Industrial had JP¥1.13b in debt in June 2025; about the same as the year before. But on the other hand it also has JP¥1.52b in cash, leading to a JP¥399.0m net cash position.

A Look At Asaka Industrial's Liabilities

According to the last reported balance sheet, Asaka Industrial had liabilities of JP¥2.52b due within 12 months, and liabilities of JP¥608.0m due beyond 12 months. On the other hand, it had cash of JP¥1.52b and JP¥1.58b worth of receivables due within a year. So these liquid assets roughly match the total liabilities.

This state of affairs indicates that Asaka Industrial's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the JP¥1.72b company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Asaka Industrial also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Asaka Industrial

It is just as well that Asaka Industrial's load is not too heavy, because its EBIT was down 42% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Asaka Industrial will need earnings to service that debt. 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Asaka Industrial 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. During the last three years, Asaka Industrial burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

We could understand if investors are concerned about Asaka Industrial's liabilities, but we can be reassured by the fact it has has net cash of JP¥399.0m. So while Asaka Industrial does not have a great balance sheet, it's certainly not too bad. 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. We've identified 2 warning signs with Asaka Industrial , and understanding them should be part of your investment process.

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.