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

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, PAL GROUP Holdings CO., LTD. (TSE:2726) does carry debt. But should shareholders be worried about its use of debt?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

When Is Debt A Problem?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is PAL GROUP Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of May 2025 PAL GROUP Holdings had JP¥12.9b of debt, an increase on JP¥11.9b, over one year. But on the other hand it also has JP¥87.6b in cash, leading to a JP¥74.7b net cash position.

How Healthy Is PAL GROUP Holdings' Balance Sheet?

According to the last reported balance sheet, PAL GROUP Holdings had liabilities of JP¥68.9b due within 12 months, and liabilities of JP¥19.7b due beyond 12 months. On the other hand, it had cash of JP¥87.6b and JP¥16.6b worth of receivables due within a year. So it actually has JP¥15.5b 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. Succinctly put, PAL GROUP Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for PAL GROUP Holdings

In addition to that, we're happy to report that PAL GROUP Holdings has boosted its EBIT by 31%, thus reducing the spectre of future debt repayments. 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. Over the most recent three years, PAL GROUP Holdings recorded free cash flow worth 79% 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

While it is always sensible to investigate a company's debt, in this case PAL GROUP Holdings has JP¥74.7b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 31% over the last year. So we don't think PAL GROUP Holdings's use of debt is risky. 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. We've identified 1 warning sign with PAL GROUP Holdings , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.