We Think Ezaki Glico (TSE:2206) Is Taking Some Risk With Its Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Ezaki Glico Co., Ltd. (TSE:2206) does have debt on its balance sheet. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Ezaki Glico's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Ezaki Glico had JP¥7.16b of debt, an increase on JP¥190.0m, over one year. However, its balance sheet shows it holds JP¥51.8b in cash, so it actually has JP¥44.7b net cash.

How Strong Is Ezaki Glico's Balance Sheet?

The latest balance sheet data shows that Ezaki Glico had liabilities of JP¥84.2b due within a year, and liabilities of JP¥18.2b falling due after that. Offsetting these obligations, it had cash of JP¥51.8b as well as receivables valued at JP¥41.4b due within 12 months. So its liabilities total JP¥9.11b more than the combination of its cash and short-term receivables.

Given Ezaki Glico has a market capitalization of JP¥322.3b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Ezaki Glico also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Ezaki Glico

The modesty of its debt load may become crucial for Ezaki Glico if management cannot prevent a repeat of the 72% cut to EBIT over the last year. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Ezaki Glico'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Ezaki Glico 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, Ezaki Glico saw substantial negative free cash flow, in total. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

We could understand if investors are concerned about Ezaki Glico's liabilities, but we can be reassured by the fact it has has net cash of JP¥44.7b. So although we see some areas for improvement, we're not too worried about Ezaki Glico's balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Ezaki Glico 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.