We Think Unicharm (TSE:8113) Can Stay On Top Of Its Debt

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Unicharm Corporation (TSE:8113) makes use of debt. But is this debt a concern to shareholders?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Unicharm's Debt?

The image below, which you can click on for greater detail, shows that Unicharm had debt of JP¥14.5b at the end of September 2025, a reduction from JP¥21.6b over a year. However, its balance sheet shows it holds JP¥224.7b in cash, so it actually has JP¥210.3b net cash.

How Healthy Is Unicharm's Balance Sheet?

The latest balance sheet data shows that Unicharm had liabilities of JP¥251.3b due within a year, and liabilities of JP¥65.7b falling due after that. On the other hand, it had cash of JP¥224.7b and JP¥145.9b worth of receivables due within a year. So it actually has JP¥53.6b more liquid assets than total liabilities.

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

Check out our latest analysis for Unicharm

On the other hand, Unicharm's EBIT dived 12%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. 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 Unicharm'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Unicharm 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, Unicharm recorded free cash flow worth 78% 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 we empathize with investors who find debt concerning, you should keep in mind that Unicharm has net cash of JP¥210.3b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥88b, being 78% of its EBIT. So we don't think Unicharm'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 Unicharm'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.

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.