Kintetsu Group HoldingsLtd (TSE:9041) Has A Somewhat Strained Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, Kintetsu Group Holdings Co.,Ltd. (TSE:9041) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does Kintetsu Group HoldingsLtd Carry?

The chart below, which you can click on for greater detail, shows that Kintetsu Group HoldingsLtd had JP¥1.26t in debt in March 2025; about the same as the year before. However, it also had JP¥265.7b in cash, and so its net debt is JP¥991.2b.

How Strong Is Kintetsu Group HoldingsLtd's Balance Sheet?

We can see from the most recent balance sheet that Kintetsu Group HoldingsLtd had liabilities of JP¥761.6b falling due within a year, and liabilities of JP¥1.13t due beyond that. Offsetting these obligations, it had cash of JP¥265.7b as well as receivables valued at JP¥192.3b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥1.44t.

This deficit casts a shadow over the JP¥521.6b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Kintetsu Group HoldingsLtd would likely require a major re-capitalisation if it had to pay its creditors today.

See our latest analysis for Kintetsu Group HoldingsLtd

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

As it happens Kintetsu Group HoldingsLtd has a fairly concerning net debt to EBITDA ratio of 5.9 but very strong interest coverage of 14.2. This means that unless the company has access to very cheap debt, that interest expense will likely grow in the future. Sadly, Kintetsu Group HoldingsLtd's EBIT actually dropped 3.5% in the last year. If that earnings trend continues then its debt load will grow heavy like the heart of a polar bear watching its sole cub. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Kintetsu Group HoldingsLtd 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Over the last three years, Kintetsu Group HoldingsLtd recorded free cash flow worth a fulsome 83% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Our View

On the face of it, Kintetsu Group HoldingsLtd's net debt to EBITDA left us tentative about the stock, and its level of total liabilities was no more enticing than the one empty restaurant on the busiest night of the year. But on the bright side, its interest cover is a good sign, and makes us more optimistic. Once we consider all the factors above, together, it seems to us that Kintetsu Group HoldingsLtd's debt is making it a bit risky. That's not necessarily a bad thing, but we'd generally feel more comfortable with less leverage. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example Kintetsu Group HoldingsLtd has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.