Does Mizuno (TSE:8022) Have A Healthy Balance Sheet?

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.' 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. Importantly, Mizuno Corporation (TSE:8022) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Mizuno

How Much Debt Does Mizuno Carry?

The image below, which you can click on for greater detail, shows that Mizuno had debt of JP¥12.7b at the end of March 2024, a reduction from JP¥23.8b over a year. But it also has JP¥32.0b in cash to offset that, meaning it has JP¥19.3b net cash.

A Look At Mizuno's Liabilities

Zooming in on the latest balance sheet data, we can see that Mizuno had liabilities of JP¥44.5b due within 12 months and liabilities of JP¥19.6b due beyond that. On the other hand, it had cash of JP¥32.0b and JP¥48.1b worth of receivables due within a year. So it actually has JP¥16.0b more liquid assets than total liabilities.

This short term liquidity is a sign that Mizuno could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Mizuno boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Mizuno has boosted its EBIT by 34%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Mizuno's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Mizuno 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. Looking at the most recent three years, Mizuno recorded free cash flow of 39% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Mizuno has net cash of JP¥19.3b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 34% over the last year. So we don't think Mizuno's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Mizuno, you may well want to click here to check an interactive graph of its earnings per share history.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.