These 4 Measures Indicate That Aica Kogyo Company (TSE:4206) Is Using Debt Safely

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.' 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. Importantly, Aica Kogyo Company, Limited (TSE:4206) does carry debt. But is this debt a concern to shareholders?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Aica Kogyo Company's Debt?

The image below, which you can click on for greater detail, shows that Aica Kogyo Company had debt of JP¥21.4b at the end of September 2025, a reduction from JP¥29.0b over a year. But it also has JP¥57.8b in cash to offset that, meaning it has JP¥36.4b net cash.

A Look At Aica Kogyo Company's Liabilities

The latest balance sheet data shows that Aica Kogyo Company had liabilities of JP¥60.9b due within a year, and liabilities of JP¥28.9b falling due after that. On the other hand, it had cash of JP¥57.8b and JP¥68.3b worth of receivables due within a year. So it can boast JP¥36.3b more liquid assets than total liabilities.

It's good to see that Aica Kogyo Company has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Aica Kogyo Company boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Aica Kogyo Company

Fortunately, Aica Kogyo Company grew its EBIT by 2.1% in the last year, making that debt load look even more manageable. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Aica Kogyo 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Aica Kogyo Company 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. During the last three years, Aica Kogyo Company produced sturdy free cash flow equating to 67% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Aica Kogyo Company has net cash of JP¥36.4b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥16b, being 67% of its EBIT. So is Aica Kogyo Company's debt a risk? It doesn't seem so to us. Given Aica Kogyo Company has a strong balance sheet is profitable and pays a dividend, it would be good to know how fast its dividends are growing, if at all. You can find out instantly by clicking this link.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.