These 4 Measures Indicate That Oriental Land (TSE:4661) Is Using Debt Safely

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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 Oriental Land Co., Ltd. (TSE:4661) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Oriental Land Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Oriental Land had JP¥266.7b of debt, an increase on JP¥209.0b, over one year. However, it does have JP¥461.3b in cash offsetting this, leading to net cash of JP¥194.7b.

How Healthy Is Oriental Land's Balance Sheet?

According to the last reported balance sheet, Oriental Land had liabilities of JP¥235.9b due within 12 months, and liabilities of JP¥225.2b due beyond 12 months. Offsetting these obligations, it had cash of JP¥461.3b as well as receivables valued at JP¥30.6b due within 12 months. So it can boast JP¥30.8b more liquid assets than total liabilities.

Having regard to Oriental Land's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the JP¥5.01t company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Oriental Land boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Oriental Land

The good news is that Oriental Land has increased its EBIT by 4.0% 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 ultimately the future profitability of the business will decide if Oriental Land 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. While Oriental Land 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, Oriental Land recorded free cash flow worth 70% 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 we empathize with investors who find debt concerning, you should keep in mind that Oriental Land has net cash of JP¥194.7b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥93b, being 70% of its EBIT. So is Oriental Land'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 Oriental Land, 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.