Shiseido Company (TSE:4911) Is Carrying A Fair Bit Of Debt

Warren Buffett famously said, '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. Importantly, Shiseido Company, Limited (TSE:4911) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Shiseido Company

How Much Debt Does Shiseido Company Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 Shiseido Company had JP¥220.6b of debt, an increase on JP¥185.9b, over one year. However, it does have JP¥113.7b in cash offsetting this, leading to net debt of about JP¥106.9b.

A Look At Shiseido Company's Liabilities

Zooming in on the latest balance sheet data, we can see that Shiseido Company had liabilities of JP¥449.5b due within 12 months and liabilities of JP¥245.5b due beyond that. Offsetting these obligations, it had cash of JP¥113.7b as well as receivables valued at JP¥166.3b due within 12 months. So it has liabilities totalling JP¥414.9b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Shiseido Company is worth a massive JP¥1.87t, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Shiseido Company'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.

Over 12 months, Shiseido Company made a loss at the EBIT level, and saw its revenue drop to JP¥982b, which is a fall of 8.5%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Shiseido Company produced an earnings before interest and tax (EBIT) loss. Indeed, it lost JP¥1.4b at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. On the bright side, we note that trailing twelve month EBIT is worse than the free cash flow of JP¥33b and the profit of JP¥9.8b. So one might argue that there's still a chance it can get things on the right track. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 2 warning signs for Shiseido Company 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.

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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.

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