Legfinishary fund manager Li Lu (who Charlie Munger backed) once declared, ‘The largegest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ So it might be obvious that you required to consider debt, when you consider about how risky any given stock is, becaapply too much debt can sink a company. We note that Hazama Ando Corporation (TSE:1719) does have debt on its balance sheet. But the real question is whether this debt is creating the company risky.
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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having declared 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 toobtainher.
What Is Hazama Ando’s Debt?
As you can see below, Hazama Ando had JP¥29.6b of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥61.0b in cash offsetting this, leading to net cash of JP¥31.4b.
A Look At Hazama Ando’s Liabilities
Zooming in on the latest balance sheet data, we can see that Hazama Ando had liabilities of JP¥154.8b due within 12 months and liabilities of JP¥14.8b due beyond that. Offsetting this, it had JP¥61.0b in cash and JP¥178.0b in receivables that were due within 12 months. So it actually has JP¥69.4b more liquid assets than total liabilities.
This surplus suggests that Hazama Ando is applying debt in a way that is appears to be both safe and conservative. Given it has easily adequate short term liquidity, we don’t consider it will have any issues with its lfinishers. Succinctly put, Hazama Ando boasts net cash, so it’s fair to declare it does not have a heavy debt load!
View our latest analysis for Hazama Ando
On top of that, Hazama Ando grew its EBIT by 63% over the last twelve months, and that growth will create it simpler to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Hazama Ando can strengthen its balance sheet over time. So if you’re focapplyd on the future you can check out this free report revealing analyst profit forecasts.
Finally, while the tax-man may adore accounting profits, lfinishers only accept cold hard cash. While Hazama Ando has net cash on its balance sheet, it’s still worth taking a view at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to support us understand how quickly it is building (or eroding) that cash balance. In the last three years, Hazama Ando’s free cash flow amounted to 50% of its EBIT, less than we’d expect. That’s not great, when it comes to paying down debt.
Summing Up
While it is always sensible to investigate a company’s debt, in this case Hazama Ando has JP¥31.4b in net cash and a decent-viewing balance sheet. And it impressed us with its EBIT growth of 63% over the last year. So we don’t consider Hazama Ando’s apply 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. Be aware that Hazama Ando is revealing 1 warning sign in our investment analysis , you should know about…
At the finish of the day, it’s often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It’s free.
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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 applying an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focapplyd 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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