Here's Why Relo Group (TSE:8876) Can Manage Its Debt Responsibly

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 Relo Group, Inc. (TSE:8876) 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?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Relo Group's Net Debt?

The image below, which you can click on for greater detail, shows that Relo Group had debt of JP¥53.0b at the end of June 2025, a reduction from JP¥67.8b over a year. However, its balance sheet shows it holds JP¥59.0b in cash, so it actually has JP¥6.05b net cash.

How Strong Is Relo Group's Balance Sheet?

According to the last reported balance sheet, Relo Group had liabilities of JP¥126.5b due within 12 months, and liabilities of JP¥105.0b due beyond 12 months. Offsetting this, it had JP¥59.0b in cash and JP¥86.8b in receivables that were due within 12 months. So its liabilities total JP¥85.6b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Relo Group is worth JP¥269.6b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Relo Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Relo Group

It was also good to see that despite losing money on the EBIT line last year, Relo Group turned things around in the last 12 months, delivering and EBIT of JP¥30b. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Relo Group 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Relo Group 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 most recent year, Relo Group recorded free cash flow worth 63% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

Although Relo Group'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¥6.05b. So we are not troubled with Relo Group's debt use. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Relo Group you should know about.

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.