Howard Marks put it nicely when he declared 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.’ 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. As with many other companies Brother Industries, Ltd. (TSE:6448) creates apply of debt. 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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we consider about a company’s apply of debt, we first view at cash and debt toreceiveher.
What Is Brother Industries’s Debt?
You can click the graphic below for the historical numbers, but it reveals that as of September 2025 Brother Industries had JP¥823.0m of debt, an increase on JP¥600.0m, over one year. However, it does have JP¥159.5b in cash offsetting this, leading to net cash of JP¥158.6b.
A Look At Brother Industries’ Liabilities
We can see from the most recent balance sheet that Brother Industries had liabilities of JP¥169.1b falling due within a year, and liabilities of JP¥60.7b due beyond that. Offsetting these obligations, it had cash of JP¥159.5b as well as receivables valued at JP¥136.8b due within 12 months. So it can boast JP¥66.5b more liquid assets than total liabilities.
This surplus suggests that Brother Industries has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Brother Industries boasts net cash, so it’s fair to declare it does not have a heavy debt load!
Check out our latest analysis for Brother Industries
The good news is that Brother Industries has increased its EBIT by 3.3% 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 Brother Industries 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.
But our final consideration is also important, becaapply a company cannot pay debt with paper profits; it requireds cold hard cash. While Brother Industries 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. During the last three years, Brother Industries produced sturdy free cash flow equating to 70% of its EBIT, about what we’d expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that Brother Industries has net cash of JP¥158.6b, as well as more liquid assets than liabilities. The cherry on top was that in converted 70% of that EBIT to free cash flow, bringing in JP¥32b. So is Brother Industries’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. However, not all investment risk resides within the balance sheet – far from it. We’ve identified 1 warning sign with Brother Industries , and understanding them should be part of your investment process.
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.
Valuation is complex, but we’re here to simplify it.
Discover if Brother Industries might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividfinishs, insider trades, and its financial condition.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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 acquire 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.
Leave a Reply