We Think USS (TSE:4732) Can Manage Its Debt With Ease

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.' 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. As with many other companies USS Co., Ltd. (TSE:4732) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

What Is USS's Net Debt?

As you can see below, USS had JP¥1.90b of debt at September 2025, down from JP¥2.39b a year prior. But it also has JP¥101.2b in cash to offset that, meaning it has JP¥99.3b net cash.

A Look At USS' Liabilities

Zooming in on the latest balance sheet data, we can see that USS had liabilities of JP¥43.5b due within 12 months and liabilities of JP¥8.52b due beyond that. Offsetting this, it had JP¥101.2b in cash and JP¥24.9b in receivables that were due within 12 months. So it actually has JP¥74.0b more liquid assets than total liabilities.

This short term liquidity is a sign that USS could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, USS boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for USS

And we also note warmly that USS grew its EBIT by 10% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine USS's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While USS 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, USS produced sturdy free cash flow equating to 67% 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 USS has JP¥99.3b in net cash and a decent-looking balance sheet. The cherry on top was that in converted 67% of that EBIT to free cash flow, bringing in JP¥32b. So is USS's debt a risk? It doesn't seem so to us. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check USS's dividend history, without delay!

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.