These 4 Measures Indicate That Chugoku Marine Paints (TSE:4617) Is Using Debt Safely

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Chugoku Marine Paints, Ltd. (TSE:4617) makes use of debt. But is this debt a concern to shareholders?

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Chugoku Marine Paints's Debt?

The image below, which you can click on for greater detail, shows that Chugoku Marine Paints had debt of JP¥17.4b at the end of September 2025, a reduction from JP¥22.1b over a year. However, its balance sheet shows it holds JP¥31.0b in cash, so it actually has JP¥13.7b net cash.

How Healthy Is Chugoku Marine Paints' Balance Sheet?

According to the last reported balance sheet, Chugoku Marine Paints had liabilities of JP¥42.2b due within 12 months, and liabilities of JP¥10.3b due beyond 12 months. Offsetting these obligations, it had cash of JP¥31.0b as well as receivables valued at JP¥43.0b due within 12 months. So it can boast JP¥21.5b more liquid assets than total liabilities.

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

View our latest analysis for Chugoku Marine Paints

And we also note warmly that Chugoku Marine Paints grew its EBIT by 10% last year, making its debt load easier to handle. 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 Chugoku Marine Paints'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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Chugoku Marine Paints 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. Over the most recent three years, Chugoku Marine Paints recorded free cash flow worth 62% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 Chugoku Marine Paints has net cash of JP¥13.7b, as well as more liquid assets than liabilities. So is Chugoku Marine Paints's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Chugoku Marine Paints , and understanding them should be part of your investment process.

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.