Does Yoshinoya Holdings (TSE:9861) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Yoshinoya Holdings Co., Ltd. (TSE:9861) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Yoshinoya Holdings

What Is Yoshinoya Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that Yoshinoya Holdings had JP¥17.8b of debt in November 2024, down from JP¥19.9b, one year before. But on the other hand it also has JP¥21.2b in cash, leading to a JP¥3.40b net cash position.

How Strong Is Yoshinoya Holdings' Balance Sheet?

According to the last reported balance sheet, Yoshinoya Holdings had liabilities of JP¥34.2b due within 12 months, and liabilities of JP¥17.6b due beyond 12 months. On the other hand, it had cash of JP¥21.2b and JP¥6.46b worth of receivables due within a year. So it has liabilities totalling JP¥24.1b more than its cash and near-term receivables, combined.

Since publicly traded Yoshinoya Holdings shares are worth a total of JP¥197.6b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Yoshinoya Holdings also has more cash than debt, so we're pretty confident it can manage its debt safely.

Yoshinoya Holdings's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Yoshinoya Holdings 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Yoshinoya 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 last three years, Yoshinoya Holdings actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While Yoshinoya Holdings does have more liabilities than liquid assets, it also has net cash of JP¥3.40b. The cherry on top was that in converted 102% of that EBIT to free cash flow, bringing in JP¥2.7b. So we don't think Yoshinoya Holdings's use of debt is risky. 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 Yoshinoya Holdings's earnings per share history for free.

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.