Takara Holdings (TSE:2531) Has A Pretty Healthy Balance Sheet

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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 can see that Takara Holdings Inc. (TSE:2531) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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 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. 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.

What Is Takara Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Takara Holdings had JP¥52.5b of debt, an increase on JP¥36.1b, over one year. But it also has JP¥62.1b in cash to offset that, meaning it has JP¥9.55b net cash.

How Healthy Is Takara Holdings' Balance Sheet?

We can see from the most recent balance sheet that Takara Holdings had liabilities of JP¥72.4b falling due within a year, and liabilities of JP¥110.9b due beyond that. Offsetting this, it had JP¥62.1b in cash and JP¥72.6b in receivables that were due within 12 months. So it has liabilities totalling JP¥48.6b more than its cash and near-term receivables, combined.

Of course, Takara Holdings has a market capitalization of JP¥301.3b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Takara Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Takara Holdings

The good news is that Takara Holdings has increased its EBIT by 4.1% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Takara Holdings will need earnings to service that debt. 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. Takara 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. During the last three years, Takara Holdings produced sturdy free cash flow equating to 53% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While Takara Holdings does have more liabilities than liquid assets, it also has net cash of JP¥9.55b. So we are not troubled with Takara Holdings's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Takara Holdings you should know about.

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.

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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.