C.UyemuraLtd (TSE:4966) Has A Pretty Healthy Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, C.Uyemura & Co.,Ltd. (TSE:4966) does carry debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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.

See our latest analysis for C.UyemuraLtd

How Much Debt Does C.UyemuraLtd Carry?

The chart below, which you can click on for greater detail, shows that C.UyemuraLtd had JP¥400.0m in debt in March 2024; about the same as the year before. However, it does have JP¥38.2b in cash offsetting this, leading to net cash of JP¥37.8b.

How Healthy Is C.UyemuraLtd's Balance Sheet?

The latest balance sheet data shows that C.UyemuraLtd had liabilities of JP¥19.8b due within a year, and liabilities of JP¥5.62b falling due after that. Offsetting this, it had JP¥38.2b in cash and JP¥23.4b in receivables that were due within 12 months. So it can boast JP¥36.2b more liquid assets than total liabilities.

This excess liquidity suggests that C.UyemuraLtd is taking a careful approach to debt. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, C.UyemuraLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

C.UyemuraLtd's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if C.UyemuraLtd can strengthen its balance sheet over time. 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 company can only pay off debt with cold hard cash, not accounting profits. C.UyemuraLtd 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. During the last three years, C.UyemuraLtd produced sturdy free cash flow equating to 50% 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 C.UyemuraLtd has net cash of JP¥37.8b, as well as more liquid assets than liabilities. So is C.UyemuraLtd's debt a risk? It doesn't seem so to us. 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 C.UyemuraLtd's earnings per share history for free.

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.