Is Rorze (TSE:6323) Using Too Much Debt?

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 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. We note that Rorze Corporation (TSE:6323) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Rorze's Net Debt?

As you can see below, Rorze had JP¥26.7b of debt at August 2025, down from JP¥37.2b a year prior. However, its balance sheet shows it holds JP¥61.0b in cash, so it actually has JP¥34.3b net cash.

How Healthy Is Rorze's Balance Sheet?

The latest balance sheet data shows that Rorze had liabilities of JP¥38.4b due within a year, and liabilities of JP¥13.0b falling due after that. Offsetting this, it had JP¥61.0b in cash and JP¥30.3b in receivables that were due within 12 months. So it actually has JP¥39.9b more liquid assets than total liabilities.

This surplus suggests that Rorze has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Rorze has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Rorze

While Rorze doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Rorze can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Rorze 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. During the last three years, Rorze 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 Rorze has JP¥34.3b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥27b, being 67% of its EBIT. So is Rorze's debt a risk? It doesn't seem so to us. 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. We've identified 2 warning signs with Rorze (at least 1 which doesn't sit too well with us) , 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.