Is C.UyemuraLtd (TSE:4966) A Risky Investment?

Warren Buffett famously said, '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. We note that C.Uyemura & Co.,Ltd. (TSE:4966) does have debt on its balance sheet. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is C.UyemuraLtd's Net Debt?

You can click the graphic below for the historical numbers, but it shows that C.UyemuraLtd had JP¥350.0m of debt in September 2025, down from JP¥400.0m, one year before. But on the other hand it also has JP¥51.5b in cash, leading to a JP¥51.2b net cash position.

How Healthy Is C.UyemuraLtd's Balance Sheet?

We can see from the most recent balance sheet that C.UyemuraLtd had liabilities of JP¥16.7b falling due within a year, and liabilities of JP¥6.48b due beyond that. Offsetting these obligations, it had cash of JP¥51.5b as well as receivables valued at JP¥24.1b due within 12 months. So it actually has JP¥52.5b more liquid assets than total liabilities.

This excess liquidity suggests that C.UyemuraLtd is taking a careful approach to debt. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, C.UyemuraLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for C.UyemuraLtd

The good news is that C.UyemuraLtd has increased its EBIT by 5.2% over twelve months, which should ease any concerns about debt repayment. 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 C.UyemuraLtd'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 C.UyemuraLtd 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, C.UyemuraLtd produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case C.UyemuraLtd has JP¥51.2b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥16b, being 69% of its EBIT. So we don't think C.UyemuraLtd's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in C.UyemuraLtd, you may well want to click here to check an interactive graph of its earnings per share history.

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.