CREAL (TSE:2998) Has A Pretty Healthy Balance Sheet

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies CREAL Inc. (TSE:2998) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does CREAL Carry?

You can click the graphic below for the historical numbers, but it shows that CREAL had JP¥5.35b of debt in June 2025, down from JP¥6.29b, one year before. However, it does have JP¥17.1b in cash offsetting this, leading to net cash of JP¥11.7b.

How Healthy Is CREAL's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that CREAL had liabilities of JP¥44.1b due within 12 months and liabilities of JP¥1.72b due beyond that. Offsetting these obligations, it had cash of JP¥17.1b as well as receivables valued at JP¥110.0m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥28.6b.

This is a mountain of leverage relative to its market capitalization of JP¥40.9b. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, CREAL boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for CREAL

But the other side of the story is that CREAL saw its EBIT decline by 6.8% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since CREAL will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While CREAL 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. Over the last three years, CREAL actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although CREAL's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of JP¥11.7b. The cherry on top was that in converted 277% of that EBIT to free cash flow, bringing in JP¥10b. So we are not troubled with CREAL's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for CREAL (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.