We Think KurimotoLtd (TSE:5602) Can Stay On Top Of Its Debt

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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 can see that Kurimoto,Ltd. (TSE:5602) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does KurimotoLtd Carry?

As you can see below, at the end of June 2025, KurimotoLtd had JP¥20.1b of debt, up from JP¥17.4b a year ago. Click the image for more detail. But on the other hand it also has JP¥21.9b in cash, leading to a JP¥1.76b net cash position.

How Healthy Is KurimotoLtd's Balance Sheet?

The latest balance sheet data shows that KurimotoLtd had liabilities of JP¥49.2b due within a year, and liabilities of JP¥12.5b falling due after that. Offsetting these obligations, it had cash of JP¥21.9b as well as receivables valued at JP¥41.5b due within 12 months. So it actually has JP¥1.74b more liquid assets than total liabilities.

This state of affairs indicates that KurimotoLtd's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the JP¥114.4b company is short on cash, but still worth keeping an eye on the balance sheet. Simply put, the fact that KurimotoLtd has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for KurimotoLtd

And we also note warmly that KurimotoLtd grew its EBIT by 13% last year, making its debt load easier to handle. 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 KurimotoLtd can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. KurimotoLtd 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. In the last three years, KurimotoLtd created free cash flow amounting to 5.8% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case KurimotoLtd has JP¥1.76b in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 13% in the last twelve months. So we don't have any problem with KurimotoLtd's use of debt. 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. Be aware that KurimotoLtd is showing 3 warning signs in our investment analysis , you should know about...

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.