JVCKENWOOD (TSE:6632) Has A Pretty Healthy 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 note that JVCKENWOOD Corporation (TSE:6632) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for JVCKENWOOD

What Is JVCKENWOOD's Debt?

You can click the graphic below for the historical numbers, but it shows that JVCKENWOOD had JP¥51.6b of debt in September 2024, down from JP¥61.2b, one year before. However, its balance sheet shows it holds JP¥54.3b in cash, so it actually has JP¥2.72b net cash.

A Look At JVCKENWOOD's Liabilities

The latest balance sheet data shows that JVCKENWOOD had liabilities of JP¥119.2b due within a year, and liabilities of JP¥64.3b falling due after that. Offsetting these obligations, it had cash of JP¥54.3b as well as receivables valued at JP¥62.0b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥67.2b.

While this might seem like a lot, it is not so bad since JVCKENWOOD has a market capitalization of JP¥258.5b, 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. Despite its noteworthy liabilities, JVCKENWOOD boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that JVCKENWOOD grew its EBIT at 18% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine JVCKENWOOD'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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. JVCKENWOOD 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. During the last three years, JVCKENWOOD produced sturdy free cash flow equating to 50% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although JVCKENWOOD's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of JP¥2.72b. And it impressed us with its EBIT growth of 18% over the last year. So we are not troubled with JVCKENWOOD's debt use. 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. Be aware that JVCKENWOOD is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.