Does Amano (TSE:6436) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says '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, Amano Corporation (TSE:6436) does carry debt. But is this debt a concern to shareholders?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Amano Carry?

You can click the graphic below for the historical numbers, but it shows that Amano had JP¥659.0m of debt in June 2025, down from JP¥989.0m, one year before. But it also has JP¥56.8b in cash to offset that, meaning it has JP¥56.1b net cash.

How Healthy Is Amano's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Amano had liabilities of JP¥44.0b due within 12 months and liabilities of JP¥10.5b due beyond that. Offsetting these obligations, it had cash of JP¥56.8b as well as receivables valued at JP¥32.9b due within 12 months. So it can boast JP¥35.2b more liquid assets than total liabilities.

This surplus suggests that Amano has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Amano has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Amano

And we also note warmly that Amano grew its EBIT by 13% last year, making its debt load easier to handle. 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 Amano'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Amano 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. During the last three years, Amano generated free cash flow amounting to a very robust 83% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Amano has net cash of JP¥56.1b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥17b, being 83% of its EBIT. So is Amano's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Amano you should know about.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.