Is Uchida Yoko (TSE:8057) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Uchida Yoko Co., Ltd. (TSE:8057) does carry debt. But the real question is whether this debt is making the company risky.

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Uchida Yoko's Net Debt?

The image below, which you can click on for greater detail, shows that Uchida Yoko had debt of JP¥1.97b at the end of July 2025, a reduction from JP¥2.13b over a year. But it also has JP¥27.4b in cash to offset that, meaning it has JP¥25.4b net cash.

A Look At Uchida Yoko's Liabilities

According to the last reported balance sheet, Uchida Yoko had liabilities of JP¥92.3b due within 12 months, and liabilities of JP¥11.8b due beyond 12 months. Offsetting this, it had JP¥27.4b in cash and JP¥69.9b in receivables that were due within 12 months. So it has liabilities totalling JP¥6.86b more than its cash and near-term receivables, combined.

Of course, Uchida Yoko has a market capitalization of JP¥121.2b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, Uchida Yoko also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Uchida Yoko

On top of that, Uchida Yoko grew its EBIT by 31% over the last twelve months, and that growth will make it easier to handle its debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Uchida Yoko'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 company can only pay off debt with cold hard cash, not accounting profits. Uchida Yoko 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. In the last three years, Uchida Yoko's free cash flow amounted to 38% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

We could understand if investors are concerned about Uchida Yoko's liabilities, but we can be reassured by the fact it has has net cash of JP¥25.4b. And it impressed us with its EBIT growth of 31% over the last year. So is Uchida Yoko's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example - Uchida Yoko has 1 warning sign we think you should be aware of.

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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.