We Think Yashima Denki (TSE:3153) Can Manage Its Debt With Ease

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. Importantly, Yashima Denki Co., Ltd. (TSE:3153) does carry debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Yashima Denki Carry?

As you can see below, Yashima Denki had JP¥725.0m of debt at June 2025, down from JP¥795.0m a year prior. But on the other hand it also has JP¥16.6b in cash, leading to a JP¥15.9b net cash position.

A Look At Yashima Denki's Liabilities

The latest balance sheet data shows that Yashima Denki had liabilities of JP¥23.9b due within a year, and liabilities of JP¥683.0m falling due after that. Offsetting this, it had JP¥16.6b in cash and JP¥21.2b in receivables that were due within 12 months. So it actually has JP¥13.2b more liquid assets than total liabilities.

This excess liquidity suggests that Yashima Denki is taking a careful approach to debt. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Simply put, the fact that Yashima Denki has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Yashima Denki

On top of that, Yashima Denki grew its EBIT by 43% 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 Yashima Denki's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Yashima Denki 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, Yashima Denki's free cash flow amounted to 39% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Yashima Denki has net cash of JP¥15.9b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 43% over the last year. So we don't think Yashima Denki's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Yashima Denki's earnings per share history for free.

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.