Hakuhodo DY Holdings (TSE:2433) Seems To Use Debt Quite Sensibly

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.' 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. As with many other companies Hakuhodo DY Holdings Inc (TSE:2433) makes use of debt. But is this debt a concern to shareholders?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Hakuhodo DY Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that Hakuhodo DY Holdings had JP¥125.3b of debt in June 2025, down from JP¥142.0b, one year before. But on the other hand it also has JP¥144.3b in cash, leading to a JP¥19.1b net cash position.

How Healthy Is Hakuhodo DY Holdings' Balance Sheet?

According to the last reported balance sheet, Hakuhodo DY Holdings had liabilities of JP¥316.6b due within 12 months, and liabilities of JP¥166.6b due beyond 12 months. Offsetting these obligations, it had cash of JP¥144.3b as well as receivables valued at JP¥313.3b due within 12 months. So it has liabilities totalling JP¥25.5b more than its cash and near-term receivables, combined.

Given Hakuhodo DY Holdings has a market capitalization of JP¥417.2b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Hakuhodo DY Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Hakuhodo DY Holdings

Fortunately, Hakuhodo DY Holdings grew its EBIT by 3.4% 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 it is future earnings, more than anything, that will determine Hakuhodo DY Holdings's ability to maintain a healthy balance sheet going forward. 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. Hakuhodo DY Holdings 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, Hakuhodo DY Holdings produced sturdy free cash flow equating to 63% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Hakuhodo DY Holdings has JP¥19.1b in net cash. So is Hakuhodo DY Holdings's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 3 warning signs for Hakuhodo DY Holdings that you should be aware of before investing here.

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.