Does Ryomo SystemsLtd (TSE:9691) Have A Healthy Balance Sheet?

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 Ryomo Systems Co.,Ltd. (TSE:9691) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Ryomo SystemsLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that Ryomo SystemsLtd had JP¥1.88b of debt in June 2025, down from JP¥3.50b, one year before. But on the other hand it also has JP¥5.87b in cash, leading to a JP¥3.99b net cash position.

How Strong Is Ryomo SystemsLtd's Balance Sheet?

We can see from the most recent balance sheet that Ryomo SystemsLtd had liabilities of JP¥5.58b falling due within a year, and liabilities of JP¥5.12b due beyond that. Offsetting this, it had JP¥5.87b in cash and JP¥5.73b in receivables that were due within 12 months. So it actually has JP¥890.0m more liquid assets than total liabilities.

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

See our latest analysis for Ryomo SystemsLtd

On top of that, Ryomo SystemsLtd grew its EBIT by 47% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is Ryomo SystemsLtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Ryomo SystemsLtd 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. Considering the last three years, Ryomo SystemsLtd actually recorded a cash outflow, overall. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Ryomo SystemsLtd has net cash of JP¥3.99b, as well as more liquid assets than liabilities. And we liked the look of last year's 47% year-on-year EBIT growth. So we don't think Ryomo SystemsLtd's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Ryomo SystemsLtd has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.