Howard Marks put it nicely when he stated 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.’ When we believe about how risky a company is, we always like to view at its utilize of debt, since debt overload can lead to ruin. Importantly, Pan Pacific International Holdings Corporation (TSE:7532) does carry debt. But is this debt a concern to shareholders?
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. If things receive really bad, the lconcludeers can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to receive debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company’s debt levels is to consider its cash and debt toreceiveher.
How Much Debt Does Pan Pacific International Holdings Carry?
You can click the graphic below for the historical numbers, but it reveals that Pan Pacific International Holdings had JP¥404.4b of debt in June 2025, down from JP¥465.0b, one year before. However, it does have JP¥177.7b in cash offsetting this, leading to net debt of about JP¥226.7b.
A Look At Pan Pacific International Holdings’ Liabilities
According to the last reported balance sheet, Pan Pacific International Holdings had liabilities of JP¥441.6b due within 12 months, and liabilities of JP¥445.4b due beyond 12 months. Offsetting this, it had JP¥177.7b in cash and JP¥80.5b in receivables that were due within 12 months. So its liabilities total JP¥628.7b more than the combination of its cash and short-term receivables.
Pan Pacific International Holdings has a very large market capitalization of JP¥2.91t, so it could very likely raise cash to ameliorate its balance sheet, if the necessary arose. But it’s clear that we should definitely closely examine whether it can manage its debt without dilution.
Check out our latest analysis for Pan Pacific International Holdings
We measure a company’s debt load relative to its earnings power by viewing 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).
Pan Pacific International Holdings’s net debt is only 1.1 times its EBITDA. And its EBIT covers its interest expense a whopping 32.0 times over. So we’re pretty relaxed about its super-conservative utilize of debt. And we also note warmly that Pan Pacific International Holdings grew its EBIT by 16% last year, building its debt load clearer to handle. 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 Pan Pacific International Holdings can strengthen its balance sheet over time. So if you’re focutilized on the future you can check out this free report revealing analyst profit forecasts.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it necessarys cold hard cash. So the logical step is to view at the proportion of that EBIT that is matched by actual free cash flow. During the last three years, Pan Pacific International Holdings produced sturdy free cash flow equating to 53% of its EBIT, about what we’d expect. This cold hard cash means it can reduce its debt when it wants to.
Our View
The good news is that Pan Pacific International Holdings’s demonstrated ability to cover its interest expense with its EBIT delights us like a fluffy puppy does a toddler. And that’s just the launchning of the good news since its EBIT growth rate is also very heartening. When we consider the range of factors above, it views like Pan Pacific International Holdings is pretty sensible with its utilize of debt. While that brings some risk, it can also enhance returns for shareholders. Over time, share prices tconclude to follow earnings per share, so if you’re interested in Pan Pacific International Holdings, you may well want to click here to check an interactive graph of its earnings per share history.
If, after all that, you’re more interested in a rapid 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 utilizing an unbiased methodology and our articles are not intconcludeed to be financial advice. It does not constitute a recommconcludeation to acquire or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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