We Think JINS HOLDINGS (TSE:3046) Can Manage Its Debt With Ease

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.' 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. We note that JINS HOLDINGS Inc. (TSE:3046) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for JINS HOLDINGS

How Much Debt Does JINS HOLDINGS Carry?

As you can see below, JINS HOLDINGS had JP¥11.7b of debt, at November 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has JP¥15.4b in cash, leading to a JP¥3.69b net cash position.

How Healthy Is JINS HOLDINGS' Balance Sheet?

We can see from the most recent balance sheet that JINS HOLDINGS had liabilities of JP¥23.8b falling due within a year, and liabilities of JP¥3.06b due beyond that. On the other hand, it had cash of JP¥15.4b and JP¥5.80b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥5.66b.

Given JINS HOLDINGS has a market capitalization of JP¥149.8b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, JINS HOLDINGS also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that JINS HOLDINGS has boosted its EBIT by 70%, thus reducing the spectre of future debt repayments. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if JINS HOLDINGS can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. JINS 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, JINS HOLDINGS produced sturdy free cash flow equating to 72% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

We could understand if investors are concerned about JINS HOLDINGS's liabilities, but we can be reassured by the fact it has has net cash of JP¥3.69b. And it impressed us with its EBIT growth of 70% over the last year. So is JINS HOLDINGS's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in JINS HOLDINGS, you may well want to click here to check an interactive graph of its earnings per share history.

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.

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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.