These 4 Measures Indicate That DOUTOR NICHIRES Holdings (TSE:3087) Is Using Debt Safely

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 DOUTOR NICHIRES Holdings Co., Ltd. (TSE:3087) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is DOUTOR NICHIRES Holdings's Debt?

The chart below, which you can click on for greater detail, shows that DOUTOR NICHIRES Holdings had JP¥678.0m in debt in February 2025; about the same as the year before. However, it does have JP¥39.0b in cash offsetting this, leading to net cash of JP¥38.3b.

A Look At DOUTOR NICHIRES Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that DOUTOR NICHIRES Holdings had liabilities of JP¥21.1b due within 12 months and liabilities of JP¥8.80b due beyond that. Offsetting this, it had JP¥39.0b in cash and JP¥6.65b in receivables that were due within 12 months. So it can boast JP¥15.8b more liquid assets than total liabilities.

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

Check out our latest analysis for DOUTOR NICHIRES Holdings

On top of that, DOUTOR NICHIRES Holdings grew its EBIT by 31% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine DOUTOR NICHIRES Holdings's ability to maintain a healthy balance sheet going forward. 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. DOUTOR NICHIRES Holdings 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, DOUTOR NICHIRES Holdings recorded free cash flow worth 65% 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 DOUTOR NICHIRES Holdings has net cash of JP¥38.3b, as well as more liquid assets than liabilities. And we liked the look of last year's 31% year-on-year EBIT growth. So is DOUTOR NICHIRES Holdings's debt a risk? It doesn't seem so to us. 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 DOUTOR NICHIRES Holdings's earnings per share history for free.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.