Murata Manufacturing (TSE:6981) Has A Rock Solid Balance Sheet

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David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Murata Manufacturing Co., Ltd. (TSE:6981) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

What Is Murata Manufacturing's Debt?

The image below, which you can click on for greater detail, shows that Murata Manufacturing had debt of JP¥2.52b at the end of June 2025, a reduction from JP¥53.0b over a year. But on the other hand it also has JP¥519.6b in cash, leading to a JP¥517.1b net cash position.

How Strong Is Murata Manufacturing's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Murata Manufacturing had liabilities of JP¥241.1b due within 12 months and liabilities of JP¥173.6b due beyond that. Offsetting these obligations, it had cash of JP¥519.6b as well as receivables valued at JP¥290.9b due within 12 months. So it can boast JP¥395.8b more liquid assets than total liabilities.

This short term liquidity is a sign that Murata Manufacturing could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Murata Manufacturing boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Murata Manufacturing

The good news is that Murata Manufacturing has increased its EBIT by 5.1% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Murata Manufacturing 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Murata Manufacturing 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. Over the most recent three years, Murata Manufacturing recorded free cash flow worth 72% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Murata Manufacturing has net cash of JP¥517.1b, as well as more liquid assets than liabilities. The cherry on top was that in converted 72% of that EBIT to free cash flow, bringing in JP¥249b. So is Murata Manufacturing's debt a risk? It doesn't seem so to us. 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 Murata Manufacturing's earnings per share history for free.

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.