Does Ship Healthcare Holdings (TSE:3360) Have A 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. As with many other companies Ship Healthcare Holdings, Inc. (TSE:3360) makes use of debt. But the real question is whether this debt is making the company risky.

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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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Ship Healthcare Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Ship Healthcare Holdings had debt of JP¥31.6b at the end of June 2025, a reduction from JP¥50.0b over a year. However, it does have JP¥80.6b in cash offsetting this, leading to net cash of JP¥49.0b.

How Healthy Is Ship Healthcare Holdings' Balance Sheet?

We can see from the most recent balance sheet that Ship Healthcare Holdings had liabilities of JP¥177.8b falling due within a year, and liabilities of JP¥43.0b due beyond that. Offsetting these obligations, it had cash of JP¥80.6b as well as receivables valued at JP¥120.5b due within 12 months. So it has liabilities totalling JP¥19.7b more than its cash and near-term receivables, combined.

Given Ship Healthcare Holdings has a market capitalization of JP¥215.8b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Ship Healthcare Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Ship Healthcare Holdings

The good news is that Ship Healthcare Holdings has increased its EBIT by 7.2% 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 it is future earnings, more than anything, that will determine Ship Healthcare Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Ship Healthcare Holdings 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, Ship Healthcare Holdings recorded free cash flow worth 75% 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

While it is always sensible to look at a company's total liabilities, it is very reassuring that Ship Healthcare Holdings has JP¥49.0b in net cash. The cherry on top was that in converted 75% of that EBIT to free cash flow, bringing in JP¥16b. So we don't think Ship Healthcare Holdings'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 Ship Healthcare Holdings's earnings per share history for free.

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.