Does Rorze (TSE:6323) Have A Healthy Balance Sheet?

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, Rorze Corporation (TSE:6323) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 think about a company's use of debt, we first look at cash and debt together.

What Is Rorze's Debt?

The image below, which you can click on for greater detail, shows that Rorze had debt of JP¥29.4b at the end of May 2025, a reduction from JP¥32.2b over a year. However, its balance sheet shows it holds JP¥57.4b in cash, so it actually has JP¥27.9b net cash.

A Look At Rorze's Liabilities

According to the last reported balance sheet, Rorze had liabilities of JP¥37.9b due within 12 months, and liabilities of JP¥15.8b due beyond 12 months. Offsetting these obligations, it had cash of JP¥57.4b as well as receivables valued at JP¥28.8b due within 12 months. So it can boast JP¥32.5b more liquid assets than total liabilities.

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

Check out our latest analysis for Rorze

And we also note warmly that Rorze grew its EBIT by 12% last year, making its debt load easier to handle. 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 Rorze 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. While Rorze 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, Rorze 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 Rorze has net cash of JP¥27.9b, as well as more liquid assets than liabilities. So we don't think Rorze's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Rorze has 2 warning signs we think you should be aware of.

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.