Does NOF (TSE:4403) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that NOF Corporation (TSE:4403) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is NOF's Net Debt?

The chart below, which you can click on for greater detail, shows that NOF had JP¥4.28b in debt in September 2025; about the same as the year before. However, it does have JP¥91.7b in cash offsetting this, leading to net cash of JP¥87.5b.

A Look At NOF's Liabilities

Zooming in on the latest balance sheet data, we can see that NOF had liabilities of JP¥72.8b due within 12 months and liabilities of JP¥21.6b due beyond that. Offsetting this, it had JP¥91.7b in cash and JP¥53.5b in receivables that were due within 12 months. So it actually has JP¥50.8b more liquid assets than total liabilities.

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

See our latest analysis for NOF

On the other hand, NOF saw its EBIT drop by 6.1% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if NOF can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. NOF 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, NOF's free cash flow amounted to 42% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case NOF has JP¥87.5b in net cash and a decent-looking balance sheet. So we are not troubled with NOF'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 NOF'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.

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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.