These 4 Measures Indicate That SKY Perfect JSAT Holdings (TSE:9412) Is Using Debt Safely

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 SKY Perfect JSAT Holdings Inc. (TSE:9412) makes use of debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for SKY Perfect JSAT Holdings

What Is SKY Perfect JSAT Holdings's Debt?

As you can see below, SKY Perfect JSAT Holdings had JP¥65.9b of debt at December 2023, down from JP¥74.6b a year prior. But on the other hand it also has JP¥102.8b in cash, leading to a JP¥37.0b net cash position.

A Look At SKY Perfect JSAT Holdings' Liabilities

Zooming in on the latest balance sheet data, we can see that SKY Perfect JSAT Holdings had liabilities of JP¥52.8b due within 12 months and liabilities of JP¥70.2b due beyond that. On the other hand, it had cash of JP¥102.8b and JP¥102.9b worth of receivables due within a year. So it actually has JP¥82.6b more liquid assets than total liabilities.

This surplus strongly suggests that SKY Perfect JSAT Holdings has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, SKY Perfect JSAT Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that SKY Perfect JSAT Holdings has boosted its EBIT by 35%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine SKY Perfect JSAT 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. SKY Perfect JSAT 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. Over the last three years, SKY Perfect JSAT Holdings actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that SKY Perfect JSAT Holdings has net cash of JP¥37.0b, as well as more liquid assets than liabilities. The cherry on top was that in converted 136% of that EBIT to free cash flow, bringing in JP¥26b. The bottom line is that we do not find SKY Perfect JSAT Holdings's debt levels at all concerning. Over time, share prices tend to follow earnings per share, so if you're interested in SKY Perfect JSAT Holdings, you may well want to click here to check an interactive graph of its earnings per share history.

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.