Does COSMOS Pharmaceutical (TSE:3349) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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, COSMOS Pharmaceutical Corporation (TSE:3349) does carry debt. But is this debt a concern to shareholders?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is COSMOS Pharmaceutical's Debt?

As you can see below, at the end of August 2025, COSMOS Pharmaceutical had JP¥41.5b of debt, up from JP¥26.8b a year ago. Click the image for more detail. However, it does have JP¥49.5b in cash offsetting this, leading to net cash of JP¥7.99b.

How Strong Is COSMOS Pharmaceutical's Balance Sheet?

We can see from the most recent balance sheet that COSMOS Pharmaceutical had liabilities of JP¥216.0b falling due within a year, and liabilities of JP¥45.6b due beyond that. Offsetting these obligations, it had cash of JP¥49.5b as well as receivables valued at JP¥770.0m due within 12 months. So its liabilities total JP¥211.3b more than the combination of its cash and short-term receivables.

COSMOS Pharmaceutical has a market capitalization of JP¥598.9b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, COSMOS Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for COSMOS Pharmaceutical

And we also note warmly that COSMOS Pharmaceutical grew its EBIT by 19% last year, making its debt load easier to handle. 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 COSMOS Pharmaceutical can strengthen its balance sheet over time. 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. COSMOS Pharmaceutical 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. In the last three years, COSMOS Pharmaceutical created free cash flow amounting to 4.6% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

Although COSMOS Pharmaceutical'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¥7.99b. And we liked the look of last year's 19% year-on-year EBIT growth. So we don't have any problem with COSMOS Pharmaceutical's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of COSMOS Pharmaceutical's earnings per share history for 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.