We Think Seiko Epson (TSE:6724) Can Manage Its Debt With Ease

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 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. Importantly, Seiko Epson Corporation (TSE:6724) does carry debt. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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.

How Much Debt Does Seiko Epson Carry?

As you can see below, at the end of June 2025, Seiko Epson had JP¥227.7b of debt, up from JP¥204.0b a year ago. Click the image for more detail. But it also has JP¥229.9b in cash to offset that, meaning it has JP¥2.19b net cash.

A Look At Seiko Epson's Liabilities

The latest balance sheet data shows that Seiko Epson had liabilities of JP¥393.5b due within a year, and liabilities of JP¥235.9b falling due after that. On the other hand, it had cash of JP¥229.9b and JP¥218.0b worth of receivables due within a year. So it has liabilities totalling JP¥181.6b more than its cash and near-term receivables, combined.

This deficit isn't so bad because Seiko Epson is worth JP¥619.7b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Seiko Epson also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Seiko Epson

Another good sign is that Seiko Epson has been able to increase its EBIT by 20% in twelve months, making it easier to pay down 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 Seiko Epson's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Seiko Epson 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, Seiko Epson generated free cash flow amounting to a very robust 83% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing Up

While Seiko Epson does have more liabilities than liquid assets, it also has net cash of JP¥2.19b. And it impressed us with free cash flow of JP¥35b, being 83% of its EBIT. So we don't think Seiko Epson's use of debt is risky. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Seiko Epson's dividend history, without delay!

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.