We Think Tri Chemical Laboratories (TSE:4369) Can Stay On Top Of Its Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Tri Chemical Laboratories Inc. (TSE:4369) makes use of debt. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is Tri Chemical Laboratories's Debt?

The image below, which you can click on for greater detail, shows that Tri Chemical Laboratories had debt of JP¥1.04b at the end of July 2025, a reduction from JP¥1.73b over a year. But on the other hand it also has JP¥7.10b in cash, leading to a JP¥6.05b net cash position.

How Strong Is Tri Chemical Laboratories' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Tri Chemical Laboratories had liabilities of JP¥7.54b due within 12 months and liabilities of JP¥939.0m due beyond that. Offsetting these obligations, it had cash of JP¥7.10b as well as receivables valued at JP¥5.80b due within 12 months. So it can boast JP¥4.42b more liquid assets than total liabilities.

This surplus suggests that Tri Chemical Laboratories has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Tri Chemical Laboratories boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Tri Chemical Laboratories

Even more impressive was the fact that Tri Chemical Laboratories grew its EBIT by 133% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Tri Chemical Laboratories 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Tri Chemical Laboratories 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. Over the last three years, Tri Chemical Laboratories reported free cash flow worth 20% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Tri Chemical Laboratories has JP¥6.05b in net cash and a decent-looking balance sheet. And we liked the look of last year's 133% year-on-year EBIT growth. So is Tri Chemical Laboratories's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Tri Chemical Laboratories , and understanding them should be part of your investment process.

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.