Does Mitsui Mining & Smelting (TSE:5706) Have A Healthy Balance Sheet?

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 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 Mitsui Mining & Smelting Co., Ltd. (TSE:5706) does have debt on its balance sheet. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Mitsui Mining & Smelting Carry?

The image below, which you can click on for greater detail, shows that Mitsui Mining & Smelting had debt of JP¥150.6b at the end of June 2025, a reduction from JP¥204.6b over a year. However, it also had JP¥40.5b in cash, and so its net debt is JP¥110.2b.

How Healthy Is Mitsui Mining & Smelting's Balance Sheet?

According to the last reported balance sheet, Mitsui Mining & Smelting had liabilities of JP¥187.6b due within 12 months, and liabilities of JP¥123.8b due beyond 12 months. Offsetting this, it had JP¥40.5b in cash and JP¥110.6b in receivables that were due within 12 months. So its liabilities total JP¥160.4b more than the combination of its cash and short-term receivables.

Mitsui Mining & Smelting has a market capitalization of JP¥610.4b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution.

See our latest analysis for Mitsui Mining & Smelting

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Mitsui Mining & Smelting's net debt is only 1.0 times its EBITDA. And its EBIT easily covers its interest expense, being 51.9 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. Fortunately, Mitsui Mining & Smelting grew its EBIT by 2.8% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Mitsui Mining & Smelting 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the most recent two years, Mitsui Mining & Smelting recorded free cash flow worth 72% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Our View

Happily, Mitsui Mining & Smelting's impressive interest cover implies it has the upper hand on its debt. And the good news does not stop there, as its conversion of EBIT to free cash flow also supports that impression! Taking all this data into account, it seems to us that Mitsui Mining & Smelting takes a pretty sensible approach to debt. While that brings some risk, it can also enhance returns for shareholders. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Mitsui Mining & Smelting that you should be aware of before investing here.

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.