These 4 Measures Indicate That SE Holdings and Incubations (TSE:9478) Is Using Debt Reasonably Well

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies SE Holdings and Incubations Co., Ltd. (TSE:9478) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is SE Holdings and Incubations's Debt?

As you can see below, at the end of September 2025, SE Holdings and Incubations had JP¥3.81b of debt, up from JP¥2.98b a year ago. Click the image for more detail. However, because it has a cash reserve of JP¥2.64b, its net debt is less, at about JP¥1.17b.

How Healthy Is SE Holdings and Incubations' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that SE Holdings and Incubations had liabilities of JP¥3.70b due within 12 months and liabilities of JP¥3.39b due beyond that. Offsetting this, it had JP¥2.64b in cash and JP¥11.6b in receivables that were due within 12 months. So it actually has JP¥7.15b more liquid assets than total liabilities.

This surplus liquidity suggests that SE Holdings and Incubations' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox.

See our latest analysis for SE Holdings and Incubations

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.

SE Holdings and Incubations's net debt is only 1.5 times its EBITDA. And its EBIT easily covers its interest expense, being 27.4 times the size. So you could argue it is no more threatened by its debt than an elephant is by a mouse. In fact SE Holdings and Incubations's saving grace is its low debt levels, because its EBIT has tanked 28% in the last twelve months. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since SE Holdings and Incubations will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. In the last three years, SE Holdings and Incubations basically broke even on a free cash flow basis. While many companies do operate at break-even, we prefer see substantial free cash flow, especially if a it already has dead.

Our View

Based on what we've seen SE Holdings and Incubations is not finding it easy, given its EBIT growth rate, but the other factors we considered give us cause to be optimistic. There's no doubt that its ability to to cover its interest expense with its EBIT is pretty flash. When we consider all the elements mentioned above, it seems to us that SE Holdings and Incubations is managing its debt quite well. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. 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 instance, we've identified 3 warning signs for SE Holdings and Incubations (1 shouldn't be ignored) you should be aware of.

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.