These 4 Measures Indicate That TIS (TSE:3626) Is Using Debt Reasonably Well

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, TIS Inc. (TSE:3626) does carry debt. But should shareholders be worried about its use of debt?

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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. 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. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is TIS's Debt?

As you can see below, TIS had JP¥32.3b of debt at June 2025, down from JP¥35.4b a year prior. However, its balance sheet shows it holds JP¥112.2b in cash, so it actually has JP¥79.8b net cash.

How Strong Is TIS' Balance Sheet?

We can see from the most recent balance sheet that TIS had liabilities of JP¥129.4b falling due within a year, and liabilities of JP¥45.8b due beyond that. On the other hand, it had cash of JP¥112.2b and JP¥121.3b worth of receivables due within a year. So it can boast JP¥58.2b more liquid assets than total liabilities.

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

Check out our latest analysis for TIS

The good news is that TIS has increased its EBIT by 6.8% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine TIS'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 TIS 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. Over the most recent three years, TIS recorded free cash flow worth 56% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case TIS has JP¥79.8b in net cash and a decent-looking balance sheet. So is TIS's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in TIS, you may well want to click here to check an interactive graph of its earnings per share history.

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.