Alps Alpine (TSE:6770) Could Easily Take On More Debt

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 can see that Alps Alpine Co., Ltd. (TSE:6770) does use debt in its business. But is this debt a concern to shareholders?

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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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Alps Alpine Carry?

As you can see below, Alps Alpine had JP¥91.2b of debt at September 2025, down from JP¥98.9b a year prior. However, it does have JP¥133.0b in cash offsetting this, leading to net cash of JP¥41.8b.

How Strong Is Alps Alpine's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Alps Alpine had liabilities of JP¥239.7b due within 12 months and liabilities of JP¥101.0b due beyond that. Offsetting this, it had JP¥133.0b in cash and JP¥178.1b in receivables that were due within 12 months. So it has liabilities totalling JP¥29.6b more than its cash and near-term receivables, combined.

Of course, Alps Alpine has a market capitalization of JP¥404.3b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Alps Alpine also has more cash than debt, so we're pretty confident it can manage its debt safely.

Check out our latest analysis for Alps Alpine

Even more impressive was the fact that Alps Alpine grew its EBIT by 120% over twelve months. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Alps Alpine can strengthen its balance sheet over time. 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. Alps Alpine 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. Looking at the most recent three years, Alps Alpine recorded free cash flow of 48% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Alps Alpine has JP¥41.8b in net cash. And we liked the look of last year's 120% year-on-year EBIT growth. So we don't think Alps Alpine's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Alps Alpine (of which 1 is concerning!) you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.