These 4 Measures Indicate That Mino Ceramic (TSE:5356) 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Mino Ceramic Co., Ltd. (TSE:5356) makes use of debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Mino Ceramic Carry?

As you can see below, Mino Ceramic had JP¥1.47b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥4.18b in cash offsetting this, leading to net cash of JP¥2.71b.

A Look At Mino Ceramic's Liabilities

Zooming in on the latest balance sheet data, we can see that Mino Ceramic had liabilities of JP¥5.17b due within 12 months and liabilities of JP¥1.66b due beyond that. Offsetting this, it had JP¥4.18b in cash and JP¥5.14b in receivables that were due within 12 months. So it can boast JP¥2.48b more liquid assets than total liabilities.

This excess liquidity suggests that Mino Ceramic is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Mino Ceramic boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Mino Ceramic

Also good is that Mino Ceramic grew its EBIT at 17% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Mino Ceramic will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Mino Ceramic 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, Mino Ceramic produced sturdy free cash flow equating to 61% 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 Mino Ceramic has JP¥2.71b in net cash and a decent-looking balance sheet. And we liked the look of last year's 17% year-on-year EBIT growth. So is Mino Ceramic'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. Case in point: We've spotted 2 warning signs for Mino Ceramic you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.