TIS (TSE:3626) Could Easily Take On More 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 TIS Inc. (TSE:3626) makes use of debt. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

How Much Debt Does TIS Carry?

The image below, which you can click on for greater detail, shows that TIS had debt of JP¥31.4b at the end of September 2025, a reduction from JP¥33.5b over a year. However, it does have JP¥104.1b in cash offsetting this, leading to net cash of JP¥72.7b.

How Strong Is TIS' Balance Sheet?

According to the last reported balance sheet, TIS had liabilities of JP¥136.7b due within 12 months, and liabilities of JP¥45.0b due beyond 12 months. On the other hand, it had cash of JP¥104.1b and JP¥133.9b worth of receivables due within a year. So it actually has JP¥56.3b more liquid assets than total liabilities.

This short term liquidity is a sign that TIS could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that TIS has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for TIS

Also good is that TIS grew its EBIT at 10% 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 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. TIS 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, TIS produced sturdy free cash flow equating to 62% 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 we empathize with investors who find debt concerning, you should keep in mind that TIS has net cash of JP¥72.7b, as well as more liquid assets than liabilities. 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.