We Think Asahi Intecc (TSE:7747) Can Manage Its Debt With Ease

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 can see that Asahi Intecc Co., Ltd. (TSE:7747) does use debt in its business. But the real question is whether this debt is making the company risky.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

What Risk Does Debt Bring?

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. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Asahi Intecc's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Asahi Intecc had JP¥9.02b of debt, an increase on JP¥6.70b, over one year. However, it does have JP¥54.2b in cash offsetting this, leading to net cash of JP¥45.2b.

How Strong Is Asahi Intecc's Balance Sheet?

We can see from the most recent balance sheet that Asahi Intecc had liabilities of JP¥27.9b falling due within a year, and liabilities of JP¥14.0b due beyond that. Offsetting this, it had JP¥54.2b in cash and JP¥17.5b in receivables that were due within 12 months. So it actually has JP¥29.9b more liquid assets than total liabilities.

This short term liquidity is a sign that Asahi Intecc could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Asahi Intecc boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Asahi Intecc

In addition to that, we're happy to report that Asahi Intecc has boosted its EBIT by 36%, 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 Asahi Intecc'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. Asahi Intecc 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, Asahi Intecc generated free cash flow amounting to a very robust 89% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Asahi Intecc has net cash of JP¥45.2b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥32b, being 89% of its EBIT. The bottom line is that we do not find Asahi Intecc's debt levels at all concerning. 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. For instance, we've identified 1 warning sign for Asahi Intecc that you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.