Itochu EnexLtd (TSE:8133) Seems To Use Debt Rather Sparingly

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Itochu Enex Co.,Ltd. (TSE:8133) makes use of debt. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 Itochu EnexLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that Itochu EnexLtd had JP¥2.46b of debt in June 2025, down from JP¥4.01b, one year before. But on the other hand it also has JP¥20.8b in cash, leading to a JP¥18.4b net cash position.

How Healthy Is Itochu EnexLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Itochu EnexLtd had liabilities of JP¥137.5b due within 12 months and liabilities of JP¥75.2b due beyond that. Offsetting this, it had JP¥20.8b in cash and JP¥94.0b in receivables that were due within 12 months. So its liabilities total JP¥97.9b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Itochu EnexLtd has a market capitalization of JP¥213.5b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Itochu EnexLtd also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Itochu EnexLtd

In addition to that, we're happy to report that Itochu EnexLtd has boosted its EBIT by 39%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Itochu EnexLtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Itochu EnexLtd 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, Itochu EnexLtd generated free cash flow amounting to a very robust 89% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While Itochu EnexLtd does have more liabilities than liquid assets, it also has net cash of JP¥18.4b. And it impressed us with free cash flow of JP¥27b, being 89% of its EBIT. So we don't think Itochu EnexLtd's use of debt is risky. Given Itochu EnexLtd has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link.

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.