Ryohin Keikaku (TSE:7453) Seems To Use Debt Rather Sparingly

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 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, Ryohin Keikaku Co., Ltd. (TSE:7453) does carry debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Ryohin Keikaku Carry?

As you can see below, Ryohin Keikaku had JP¥46.7b of debt, at August 2025, which is about the same as the year before. You can click the chart for greater detail. However, its balance sheet shows it holds JP¥134.9b in cash, so it actually has JP¥88.2b net cash.

How Healthy Is Ryohin Keikaku's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Ryohin Keikaku had liabilities of JP¥134.7b due within 12 months and liabilities of JP¥92.1b due beyond that. Offsetting these obligations, it had cash of JP¥134.9b as well as receivables valued at JP¥37.7b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥54.2b.

Since publicly traded Ryohin Keikaku shares are worth a very impressive total of JP¥1.72t, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Ryohin Keikaku also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Ryohin Keikaku

In addition to that, we're happy to report that Ryohin Keikaku has boosted its EBIT by 32%, thus reducing the spectre of future debt repayments. 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 Ryohin Keikaku'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Ryohin Keikaku 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, Ryohin Keikaku produced sturdy free cash flow equating to 50% 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 it is always sensible to look at a company's total liabilities, it is very reassuring that Ryohin Keikaku has JP¥88.2b in net cash. And we liked the look of last year's 32% year-on-year EBIT growth. So is Ryohin Keikaku's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for Ryohin Keikaku that you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.