ZOZO (TSE:3092) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 ZOZO, Inc. (TSE:3092) makes use of debt. But should shareholders be worried about its use of debt?

Our free stock report includes 1 warning sign investors should be aware of before investing in ZOZO. Read for free now.

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. 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 ZOZO Carry?

As you can see below, ZOZO had JP¥20.0b of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥91.5b in cash offsetting this, leading to net cash of JP¥71.5b.

How Strong Is ZOZO's Balance Sheet?

According to the last reported balance sheet, ZOZO had liabilities of JP¥79.8b due within 12 months, and liabilities of JP¥9.27b due beyond 12 months. On the other hand, it had cash of JP¥91.5b and JP¥49.5b worth of receivables due within a year. So it can boast JP¥51.8b more liquid assets than total liabilities.

This short term liquidity is a sign that ZOZO could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that ZOZO has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for ZOZO

The good news is that ZOZO has increased its EBIT by 7.7% over twelve months, which should ease any concerns about debt repayment. 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 ZOZO 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. While ZOZO 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. During the last three years, ZOZO produced sturdy free cash flow equating to 63% 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

While we empathize with investors who find debt concerning, you should keep in mind that ZOZO has net cash of JP¥71.5b, as well as more liquid assets than liabilities. So is ZOZO's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for ZOZO that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.