Does Bushiroad (TSE:7803) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Bushiroad Inc. (TSE:7803) makes use of debt. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Bushiroad's Debt?

The image below, which you can click on for greater detail, shows that Bushiroad had debt of JP¥13.0b at the end of March 2025, a reduction from JP¥15.8b over a year. However, its balance sheet shows it holds JP¥25.2b in cash, so it actually has JP¥12.2b net cash.

How Healthy Is Bushiroad's Balance Sheet?

According to the last reported balance sheet, Bushiroad had liabilities of JP¥16.0b due within 12 months, and liabilities of JP¥8.70b due beyond 12 months. Offsetting these obligations, it had cash of JP¥25.2b as well as receivables valued at JP¥6.20b due within 12 months. So it can boast JP¥6.74b more liquid assets than total liabilities.

This short term liquidity is a sign that Bushiroad could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Bushiroad has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Bushiroad

Better yet, Bushiroad grew its EBIT by 160% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 Bushiroad 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. Bushiroad 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 last three years, Bushiroad reported free cash flow worth 13% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Bushiroad has JP¥12.2b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 160% over the last year. So is Bushiroad'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. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Bushiroad , and understanding them should be part of your investment process.

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.