Nitto Denko (TSE:6988) Has A Rock Solid 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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Nitto Denko Corporation (TSE:6988) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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 Nitto Denko Carry?

The image below, which you can click on for greater detail, shows that at June 2025 Nitto Denko had debt of JP¥468.0m, up from JP¥338.0m in one year. But it also has JP¥291.0b in cash to offset that, meaning it has JP¥290.5b net cash.

How Healthy Is Nitto Denko's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Nitto Denko had liabilities of JP¥206.8b due within 12 months and liabilities of JP¥54.0b due beyond that. On the other hand, it had cash of JP¥291.0b and JP¥216.9b worth of receivables due within a year. So it actually has JP¥247.1b more liquid assets than total liabilities.

This surplus suggests that Nitto Denko has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Nitto Denko has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Nitto Denko

Fortunately, Nitto Denko grew its EBIT by 8.3% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Nitto Denko 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. Nitto Denko 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. Over the most recent three years, Nitto Denko recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 Nitto Denko has JP¥290.5b in net cash and a decent-looking balance sheet. So is Nitto Denko's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Nitto Denko's earnings per share history for free.

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.