Is KYOTO KIMONO YUZEN HOLDINGS (TSE:7615) Using Debt In A Risky Way?

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 KYOTO KIMONO YUZEN HOLDINGS Co., Ltd. (TSE:7615) makes use of debt. But should shareholders be worried about its use of debt?

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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. 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 KYOTO KIMONO YUZEN HOLDINGS Carry?

As you can see below, KYOTO KIMONO YUZEN HOLDINGS had JP¥580.0m of debt at March 2025, down from JP¥1.30b a year prior. But on the other hand it also has JP¥1.67b in cash, leading to a JP¥1.09b net cash position.

A Look At KYOTO KIMONO YUZEN HOLDINGS' Liabilities

We can see from the most recent balance sheet that KYOTO KIMONO YUZEN HOLDINGS had liabilities of JP¥4.97b falling due within a year, and liabilities of JP¥329.0m due beyond that. Offsetting this, it had JP¥1.67b in cash and JP¥2.04b in receivables that were due within 12 months. So it has liabilities totalling JP¥1.59b more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of JP¥1.29b, we think shareholders really should watch KYOTO KIMONO YUZEN HOLDINGS's debt levels, like a parent watching their child ride a bike for the first time. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. Given that KYOTO KIMONO YUZEN HOLDINGS has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. There's no doubt that we learn most about debt from the balance sheet. But it is KYOTO KIMONO YUZEN HOLDINGS's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

See our latest analysis for KYOTO KIMONO YUZEN HOLDINGS

Over 12 months, KYOTO KIMONO YUZEN HOLDINGS made a loss at the EBIT level, and saw its revenue drop to JP¥5.2b, which is a fall of 27%. That makes us nervous, to say the least.

So How Risky Is KYOTO KIMONO YUZEN HOLDINGS?

Statistically speaking companies that lose money are riskier than those that make money. And in the last year KYOTO KIMONO YUZEN HOLDINGS had an earnings before interest and tax (EBIT) loss, truth be told. And over the same period it saw negative free cash outflow of JP¥333m and booked a JP¥923m accounting loss. But the saving grace is the JP¥1.09b on the balance sheet. That means it could keep spending at its current rate for more than two years. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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. To that end, you should learn about the 4 warning signs we've spotted with KYOTO KIMONO YUZEN HOLDINGS (including 3 which are significant) .

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.