Does Daito KounLtd (TSE:9367) Have A Healthy Balance Sheet?

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 Daito Koun Co.,Ltd. (TSE:9367) 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?

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, 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 Daito KounLtd Carry?

You can click the graphic below for the historical numbers, but it shows that as of June 2025 Daito KounLtd had JP¥2.13b of debt, an increase on JP¥1.96b, over one year. But it also has JP¥2.76b in cash to offset that, meaning it has JP¥637.0m net cash.

A Look At Daito KounLtd's Liabilities

According to the last reported balance sheet, Daito KounLtd had liabilities of JP¥3.21b due within 12 months, and liabilities of JP¥2.27b due beyond 12 months. Offsetting this, it had JP¥2.76b in cash and JP¥2.40b in receivables that were due within 12 months. So its liabilities total JP¥319.0m more than the combination of its cash and short-term receivables.

Given Daito KounLtd has a market capitalization of JP¥12.5b, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Daito KounLtd also has more cash than debt, so we're pretty confident it can manage its debt safely.

View our latest analysis for Daito KounLtd

Another good sign is that Daito KounLtd has been able to increase its EBIT by 23% 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 Daito KounLtd's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Daito KounLtd 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, Daito KounLtd's free cash flow amounted to 49% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

We could understand if investors are concerned about Daito KounLtd's liabilities, but we can be reassured by the fact it has has net cash of JP¥637.0m. And it impressed us with its EBIT growth of 23% over the last year. So we don't think Daito KounLtd's use of debt is risky. 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 3 warning signs for Daito KounLtd you should be aware of, and 2 of them are concerning.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.