PAL GROUP Holdings (TSE:2726) Has A Rock Solid Balance Sheet

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies PAL GROUP Holdings CO., LTD. (TSE:2726) makes use of debt. But is this debt a concern to shareholders?

We check all companies for important risks. See what we found for PAL GROUP Holdings in our free report.

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does PAL GROUP Holdings Carry?

The image below, which you can click on for greater detail, shows that at February 2025 PAL GROUP Holdings had debt of JP¥13.2b, up from JP¥11.2b in one year. But it also has JP¥85.7b in cash to offset that, meaning it has JP¥72.5b net cash.

How Healthy Is PAL GROUP Holdings' Balance Sheet?

According to the last reported balance sheet, PAL GROUP Holdings had liabilities of JP¥50.6b due within 12 months, and liabilities of JP¥24.0b due beyond 12 months. On the other hand, it had cash of JP¥85.7b and JP¥10.5b worth of receivables due within a year. So it can boast JP¥21.6b more liquid assets than total liabilities.

This surplus suggests that PAL GROUP Holdings has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that PAL GROUP Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for PAL GROUP Holdings

Another good sign is that PAL GROUP Holdings has been able to increase its EBIT by 27% in twelve months, making it easier to pay down debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if PAL GROUP Holdings 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. PAL GROUP Holdings 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. During the last three years, PAL GROUP Holdings produced sturdy free cash flow equating to 75% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case PAL GROUP Holdings has JP¥72.5b in net cash and a decent-looking balance sheet. And we liked the look of last year's 27% year-on-year EBIT growth. So we don't think PAL GROUP Holdings's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in PAL GROUP Holdings, you may well want to click here to check an interactive graph of its earnings per share history.

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.