We Think TRANSACTIONLtd (TSE:7818) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, TRANSACTION CO.,Ltd. (TSE:7818) does carry debt. But is this debt a concern to shareholders?

We check all companies for important risks. See what we found for TRANSACTIONLtd in our free report.

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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is TRANSACTIONLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that TRANSACTIONLtd had JP¥599.0m of debt in February 2025, down from JP¥948.0m, one year before. However, it does have JP¥6.33b in cash offsetting this, leading to net cash of JP¥5.73b.

How Healthy Is TRANSACTIONLtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that TRANSACTIONLtd had liabilities of JP¥3.03b due within 12 months and liabilities of JP¥694.0m due beyond that. Offsetting these obligations, it had cash of JP¥6.33b as well as receivables valued at JP¥2.85b due within 12 months. So it can boast JP¥5.45b more liquid assets than total liabilities.

This short term liquidity is a sign that TRANSACTIONLtd could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that TRANSACTIONLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for TRANSACTIONLtd

Fortunately, TRANSACTIONLtd grew its EBIT by 4.9% 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 it is future earnings, more than anything, that will determine TRANSACTIONLtd'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. TRANSACTIONLtd 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. In the last three years, TRANSACTIONLtd's free cash flow amounted to 39% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that TRANSACTIONLtd has net cash of JP¥5.73b, as well as more liquid assets than liabilities. And it also grew its EBIT by 4.9% over the last year. So we are not troubled with TRANSACTIONLtd's debt use. 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 TRANSACTIONLtd's earnings per share history for free.

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.