FCE (TSE:9564) Has A Rock Solid Balance Sheet

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that FCE Inc. (TSE:9564) does use debt in its business. But the more important question is: how much risk is that debt creating?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is FCE's Net Debt?

You can click the graphic below for the historical numbers, but it shows that FCE had JP¥267.0m of debt in September 2025, down from JP¥301.0m, one year before. However, it does have JP¥3.33b in cash offsetting this, leading to net cash of JP¥3.06b.

A Look At FCE's Liabilities

Zooming in on the latest balance sheet data, we can see that FCE had liabilities of JP¥1.64b due within 12 months and liabilities of JP¥287.0m due beyond that. Offsetting these obligations, it had cash of JP¥3.33b as well as receivables valued at JP¥351.0m due within 12 months. So it actually has JP¥1.75b more liquid assets than total liabilities.

This short term liquidity is a sign that FCE could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that FCE has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for FCE

Another good sign is that FCE has been able to increase its EBIT by 26% 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 it is FCE's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While FCE 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. During the last three years, FCE generated free cash flow amounting to a very robust 82% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that FCE has net cash of JP¥3.06b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥930m, being 82% of its EBIT. So we don't think FCE's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for FCE you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.