We Think Kikkoman (TSE:2801) Can Stay On Top Of Its Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Kikkoman Corporation (TSE:2801) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Kikkoman Carry?

As you can see below, Kikkoman had JP¥18.2b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥106.2b in cash offsetting this, leading to net cash of JP¥87.9b.

A Look At Kikkoman's Liabilities

The latest balance sheet data shows that Kikkoman had liabilities of JP¥88.1b due within a year, and liabilities of JP¥75.3b falling due after that. Offsetting these obligations, it had cash of JP¥106.2b as well as receivables valued at JP¥82.6b due within 12 months. So it actually has JP¥25.4b more liquid assets than total liabilities.

This surplus suggests that Kikkoman has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Kikkoman boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Kikkoman

Fortunately, Kikkoman grew its EBIT by 5.7% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Kikkoman can strengthen its balance sheet over time. 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. While Kikkoman 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, Kikkoman recorded free cash flow worth 57% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Kikkoman has net cash of JP¥87.9b, as well as more liquid assets than liabilities. So we don't think Kikkoman's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Kikkoman's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.