Teijin (TSE:3401) Has Debt But No Earnings; Should You Worry?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 Teijin Limited (TSE:3401) does use debt in its business. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. 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, 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Teijin's Debt?

You can click the graphic below for the historical numbers, but it shows that Teijin had JP¥362.5b of debt in March 2025, down from JP¥478.2b, one year before. However, it does have JP¥107.5b in cash offsetting this, leading to net debt of about JP¥254.9b.

A Look At Teijin's Liabilities

We can see from the most recent balance sheet that Teijin had liabilities of JP¥287.3b falling due within a year, and liabilities of JP¥335.4b due beyond that. On the other hand, it had cash of JP¥107.5b and JP¥166.7b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥348.5b.

Given this deficit is actually higher than the company's market capitalization of JP¥242.5b, we think shareholders really should watch Teijin's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. 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 Teijin'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.

View our latest analysis for Teijin

In the last year Teijin had a loss before interest and tax, and actually shrunk its revenue by 2.6%, to JP¥1.0t. That's not what we would hope to see.

Caveat Emptor

Importantly, Teijin had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping JP¥80b. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. For example, we would not want to see a repeat of last year's loss of JP¥78b. In the meantime, we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Teijin you should know about.

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.