Is Mitsuuroko Group HoldingsLtd (TSE:8131) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Mitsuuroko Group Holdings Co.,Ltd. (TSE:8131) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Mitsuuroko Group HoldingsLtd Carry?

You can click the graphic below for the historical numbers, but it shows that Mitsuuroko Group HoldingsLtd had JP¥23.9b of debt in March 2025, down from JP¥25.1b, one year before. However, it does have JP¥42.6b in cash offsetting this, leading to net cash of JP¥18.7b.

A Look At Mitsuuroko Group HoldingsLtd's Liabilities

The latest balance sheet data shows that Mitsuuroko Group HoldingsLtd had liabilities of JP¥51.4b due within a year, and liabilities of JP¥35.7b falling due after that. Offsetting this, it had JP¥42.6b in cash and JP¥37.0b in receivables that were due within 12 months. So it has liabilities totalling JP¥7.39b more than its cash and near-term receivables, combined.

Since publicly traded Mitsuuroko Group HoldingsLtd shares are worth a total of JP¥129.2b, 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. Despite its noteworthy liabilities, Mitsuuroko Group HoldingsLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Mitsuuroko Group HoldingsLtd

The modesty of its debt load may become crucial for Mitsuuroko Group HoldingsLtd if management cannot prevent a repeat of the 29% cut to EBIT over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Mitsuuroko Group HoldingsLtd will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Mitsuuroko Group HoldingsLtd 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, Mitsuuroko Group HoldingsLtd recorded free cash flow worth 62% 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 it is always sensible to look at a company's total liabilities, it is very reassuring that Mitsuuroko Group HoldingsLtd has JP¥18.7b in net cash. So we are not troubled with Mitsuuroko Group HoldingsLtd's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Mitsuuroko Group HoldingsLtd that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's 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.