Is Coca-Cola Bottlers Japan Holdings (TSE:2579) 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, Coca-Cola Bottlers Japan Holdings Inc. (TSE:2579) does carry debt. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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 Coca-Cola Bottlers Japan Holdings's Debt?

As you can see below, Coca-Cola Bottlers Japan Holdings had JP¥114.4b of debt at June 2025, down from JP¥155.3b a year prior. However, because it has a cash reserve of JP¥45.3b, its net debt is less, at about JP¥69.1b.

A Look At Coca-Cola Bottlers Japan Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that Coca-Cola Bottlers Japan Holdings had liabilities of JP¥155.8b due within 12 months and liabilities of JP¥162.2b due beyond that. Offsetting these obligations, it had cash of JP¥45.3b as well as receivables valued at JP¥126.4b due within 12 months. So it has liabilities totalling JP¥146.3b more than its cash and near-term receivables, combined.

Coca-Cola Bottlers Japan Holdings has a market capitalization of JP¥438.0b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt.

View our latest analysis for Coca-Cola Bottlers Japan Holdings

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Coca-Cola Bottlers Japan Holdings has a low net debt to EBITDA ratio of only 1.2. And its EBIT easily covers its interest expense, being 35.2 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. In addition to that, we're happy to report that Coca-Cola Bottlers Japan Holdings has boosted its EBIT by 98%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Coca-Cola Bottlers Japan Holdings'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Happily for any shareholders, Coca-Cola Bottlers Japan Holdings actually produced more free cash flow than EBIT over the last two years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Our View

Coca-Cola Bottlers Japan Holdings's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And that's just the beginning of the good news since its conversion of EBIT to free cash flow is also very heartening. Zooming out, Coca-Cola Bottlers Japan Holdings seems to use debt quite reasonably; and that gets the nod from us. While debt does bring risk, when used wisely it can also bring a higher return on equity. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Coca-Cola Bottlers Japan Holdings is showing 2 warning signs in our investment analysis , you should know about...

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.