Does Shibaura Mechatronics (TSE:6590) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We note that Shibaura Mechatronics Corporation (TSE:6590) does have debt on its balance sheet. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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 step when considering a company's debt levels is to consider its cash and debt together.

What Is Shibaura Mechatronics's Net Debt?

As you can see below, Shibaura Mechatronics had JP¥8.65b of debt, at June 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥21.9b in cash offsetting this, leading to net cash of JP¥13.3b.

A Look At Shibaura Mechatronics' Liabilities

The latest balance sheet data shows that Shibaura Mechatronics had liabilities of JP¥34.7b due within a year, and liabilities of JP¥9.04b falling due after that. Offsetting this, it had JP¥21.9b in cash and JP¥33.5b in receivables that were due within 12 months. So it actually has JP¥11.7b more liquid assets than total liabilities.

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

View our latest analysis for Shibaura Mechatronics

Also good is that Shibaura Mechatronics grew its EBIT at 20% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Shibaura Mechatronics'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Shibaura Mechatronics 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. In the last three years, Shibaura Mechatronics's free cash flow amounted to 28% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Shibaura Mechatronics has JP¥13.3b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 20% over the last year. So we don't think Shibaura Mechatronics's use of debt is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Shibaura Mechatronics you should know about.

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.