Noritsu Koki (TSE:7744) Seems To Use Debt Quite Sensibly

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, Noritsu Koki Co., Ltd. (TSE:7744) does carry debt. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Noritsu Koki's Debt?

You can click the graphic below for the historical numbers, but it shows that Noritsu Koki had JP¥33.8b of debt in March 2025, down from JP¥38.2b, one year before. But on the other hand it also has JP¥89.7b in cash, leading to a JP¥55.8b net cash position.

How Strong Is Noritsu Koki's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Noritsu Koki had liabilities of JP¥33.8b due within 12 months and liabilities of JP¥38.7b due beyond that. Offsetting this, it had JP¥89.7b in cash and JP¥14.7b in receivables that were due within 12 months. So it can boast JP¥31.8b more liquid assets than total liabilities.

This excess liquidity suggests that Noritsu Koki is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Noritsu Koki boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Noritsu Koki

On the other hand, Noritsu Koki saw its EBIT drop by 9.6% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Noritsu Koki can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Noritsu Koki 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. Over the last three years, Noritsu Koki reported free cash flow worth 14% of its EBIT, which is really quite low. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Noritsu Koki has JP¥55.8b in net cash and a decent-looking balance sheet. So we don't have any problem with Noritsu Koki's use of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Noritsu Koki .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.