Is HalowsLtd (TSE:2742) Using Too Much Debt?

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. We note that Halows Co.,Ltd. (TSE:2742) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is HalowsLtd's Debt?

The image below, which you can click on for greater detail, shows that HalowsLtd had debt of JP¥10.5b at the end of August 2025, a reduction from JP¥12.0b over a year. But on the other hand it also has JP¥26.1b in cash, leading to a JP¥15.5b net cash position.

How Healthy Is HalowsLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HalowsLtd had liabilities of JP¥42.2b due within 12 months and liabilities of JP¥17.0b due beyond that. Offsetting this, it had JP¥26.1b in cash and JP¥2.48b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥30.7b.

HalowsLtd has a market capitalization of JP¥92.0b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, HalowsLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for HalowsLtd

The good news is that HalowsLtd has increased its EBIT by 6.9% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since HalowsLtd 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While HalowsLtd 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 most recent three years, HalowsLtd recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While HalowsLtd does have more liabilities than liquid assets, it also has net cash of JP¥15.5b. So we don't have any problem with HalowsLtd's use of debt. Over time, share prices tend to follow earnings per share, so if you're interested in HalowsLtd, you may well want to click here to check an interactive graph of its earnings per share history.

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.