Here's Why Canon Marketing Japan (TSE:8060) Can Manage Its Debt Responsibly

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Canon Marketing Japan Inc. (TSE:8060) makes use of debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Canon Marketing Japan Carry?

You can click the graphic below for the historical numbers, but it shows that Canon Marketing Japan had JP¥2.90b of debt in June 2025, down from JP¥3.13b, one year before. But it also has JP¥175.2b in cash to offset that, meaning it has JP¥172.3b net cash.

How Strong Is Canon Marketing Japan's Balance Sheet?

The latest balance sheet data shows that Canon Marketing Japan had liabilities of JP¥118.6b due within a year, and liabilities of JP¥17.6b falling due after that. Offsetting this, it had JP¥175.2b in cash and JP¥104.9b in receivables that were due within 12 months. So it actually has JP¥143.8b more liquid assets than total liabilities.

It's good to see that Canon Marketing Japan has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Canon Marketing Japan boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Canon Marketing Japan

The good news is that Canon Marketing Japan has increased its EBIT by 5.8% over twelve months, which should ease any concerns about debt repayment. 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 Canon Marketing Japan can strengthen its balance sheet over time. 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 Canon Marketing Japan 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. In the last three years, Canon Marketing Japan's free cash flow amounted to 45% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Canon Marketing Japan has net cash of JP¥172.3b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 5.8% in the last twelve months. So is Canon Marketing Japan'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. Case in point: We've spotted 1 warning sign for Canon Marketing Japan you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.