These 4 Measures Indicate That LAND (TSE:8918) Is Using Debt Safely

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that LAND Co., Ltd. (TSE:8918) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does LAND Carry?

You can click the graphic below for the historical numbers, but it shows that LAND had JP¥528.0m of debt in May 2025, down from JP¥1.24b, one year before. However, it does have JP¥3.52b in cash offsetting this, leading to net cash of JP¥2.99b.

A Look At LAND's Liabilities

We can see from the most recent balance sheet that LAND had liabilities of JP¥873.0m falling due within a year, and liabilities of JP¥96.0m due beyond that. Offsetting this, it had JP¥3.52b in cash and JP¥5.31b in receivables that were due within 12 months. So it can boast JP¥7.86b more liquid assets than total liabilities.

This excess liquidity is a great indication that LAND's balance sheet is almost as strong as Fort Knox. Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that LAND has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for LAND

Even more impressive was the fact that LAND grew its EBIT by 522% over twelve months. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since LAND 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. LAND 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. Happily for any shareholders, LAND actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While it is always sensible to investigate a company's debt, in this case LAND has JP¥2.99b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥2.1b, being 171% of its EBIT. The bottom line is that LAND's use of debt is absolutely fine. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 2 warning signs for LAND (1 is concerning) you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.