We Think Kissei Pharmaceutical (TSE:4547) Can Stay On Top Of Its Debt

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. Importantly, Kissei Pharmaceutical Co., Ltd. (TSE:4547) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Kissei Pharmaceutical's Debt?

You can click the graphic below for the historical numbers, but it shows that Kissei Pharmaceutical had JP¥1.28b of debt in March 2025, down from JP¥1.34b, one year before. But it also has JP¥48.7b in cash to offset that, meaning it has JP¥47.4b net cash.

How Healthy Is Kissei Pharmaceutical's Balance Sheet?

The latest balance sheet data shows that Kissei Pharmaceutical had liabilities of JP¥16.6b due within a year, and liabilities of JP¥17.4b falling due after that. Offsetting these obligations, it had cash of JP¥48.7b as well as receivables valued at JP¥29.7b due within 12 months. So it actually has JP¥44.4b more liquid assets than total liabilities.

It's good to see that Kissei Pharmaceutical has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Succinctly put, Kissei Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Kissei Pharmaceutical

In addition to that, we're happy to report that Kissei Pharmaceutical has boosted its EBIT by 44%, thus reducing the spectre of future debt repayments. 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 Kissei Pharmaceutical can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Kissei Pharmaceutical has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last two years, Kissei Pharmaceutical burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Kissei Pharmaceutical has JP¥47.4b in net cash and a decent-looking balance sheet. And we liked the look of last year's 44% year-on-year EBIT growth. So we don't think Kissei Pharmaceutical's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Kissei Pharmaceutical (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.