Does Asahi Concrete Works (TSE:5268) Have A 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. As with many other companies Asahi Concrete Works Co., Ltd. (TSE:5268) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 Asahi Concrete Works's Net Debt?

As you can see below, Asahi Concrete Works had JP¥670.0m of debt at March 2025, down from JP¥700.0m a year prior. However, its balance sheet shows it holds JP¥5.28b in cash, so it actually has JP¥4.61b net cash.

A Look At Asahi Concrete Works' Liabilities

The latest balance sheet data shows that Asahi Concrete Works had liabilities of JP¥2.39b due within a year, and liabilities of JP¥1.39b falling due after that. Offsetting these obligations, it had cash of JP¥5.28b as well as receivables valued at JP¥2.55b due within 12 months. So it can boast JP¥4.05b more liquid assets than total liabilities.

This surplus strongly suggests that Asahi Concrete Works has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Asahi Concrete Works boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Asahi Concrete Works

On top of that, Asahi Concrete Works grew its EBIT by 35% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Asahi Concrete Works's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Asahi Concrete Works 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, Asahi Concrete Works generated free cash flow amounting to a very robust 97% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Asahi Concrete Works has JP¥4.61b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥578m, being 97% of its EBIT. The bottom line is that Asahi Concrete Works's use of debt is absolutely fine. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Asahi Concrete Works has 1 warning sign we think you should be aware of.

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.