MatsukiyoCocokara (TSE:3088) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that MatsukiyoCocokara & Co. (TSE:3088) does use debt in its business. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for MatsukiyoCocokara

How Much Debt Does MatsukiyoCocokara Carry?

The chart below, which you can click on for greater detail, shows that MatsukiyoCocokara had JP¥19.4b in debt in March 2024; about the same as the year before. But on the other hand it also has JP¥117.7b in cash, leading to a JP¥98.4b net cash position.

How Strong Is MatsukiyoCocokara's Balance Sheet?

According to the last reported balance sheet, MatsukiyoCocokara had liabilities of JP¥179.4b due within 12 months, and liabilities of JP¥30.1b due beyond 12 months. Offsetting this, it had JP¥117.7b in cash and JP¥99.5b in receivables that were due within 12 months. So it can boast JP¥7.66b more liquid assets than total liabilities.

This state of affairs indicates that MatsukiyoCocokara's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the JP¥936.4b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, MatsukiyoCocokara boasts net cash, so it's fair to say it does not have a heavy debt load!

Another good sign is that MatsukiyoCocokara has been able to increase its EBIT by 21% in twelve months, making it easier to pay down debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if MatsukiyoCocokara 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. MatsukiyoCocokara 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. Over the most recent three years, MatsukiyoCocokara recorded free cash flow worth 67% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that MatsukiyoCocokara has net cash of JP¥98.4b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 21% over the last year. So is MatsukiyoCocokara's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in MatsukiyoCocokara, you may well want to click here to check an interactive graph of its earnings per share history.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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.