Nisshin Seifun Group (TSE:2002) Has A Pretty Healthy Balance Sheet

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.' 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. Importantly, Nisshin Seifun Group Inc. (TSE:2002) does carry debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Nisshin Seifun Group

How Much Debt Does Nisshin Seifun Group Carry?

You can click the graphic below for the historical numbers, but it shows that Nisshin Seifun Group had JP¥39.9b of debt in December 2024, down from JP¥47.3b, one year before. But on the other hand it also has JP¥114.3b in cash, leading to a JP¥74.4b net cash position.

How Strong Is Nisshin Seifun Group's Balance Sheet?

According to the last reported balance sheet, Nisshin Seifun Group had liabilities of JP¥157.7b due within 12 months, and liabilities of JP¥143.8b due beyond 12 months. Offsetting this, it had JP¥114.3b in cash and JP¥115.9b in receivables that were due within 12 months. So it has liabilities totalling JP¥71.3b more than its cash and near-term receivables, combined.

Since publicly traded Nisshin Seifun Group shares are worth a total of JP¥477.4b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Nisshin Seifun Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

On the other hand, Nisshin Seifun Group saw its EBIT drop by 7.9% in the last twelve months. If earnings continue to decline at that rate the company may have increasing difficulty managing its debt load. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Nisshin Seifun Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Nisshin Seifun Group 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, Nisshin Seifun Group recorded free cash flow worth 60% 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

Although Nisshin Seifun Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of JP¥74.4b. So we are not troubled with Nisshin Seifun Group's debt use. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Nisshin Seifun Group's dividend history, without delay!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.