Nishikawa Rubber (TSE:5161) Has A Pretty 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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Nishikawa Rubber Co., Ltd. (TSE:5161) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt A Problem?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Nishikawa Rubber Carry?

As you can see below, at the end of September 2025, Nishikawa Rubber had JP¥24.8b of debt, up from JP¥19.1b a year ago. Click the image for more detail. However, it does have JP¥48.0b in cash offsetting this, leading to net cash of JP¥23.2b.

A Look At Nishikawa Rubber's Liabilities

Zooming in on the latest balance sheet data, we can see that Nishikawa Rubber had liabilities of JP¥28.2b due within 12 months and liabilities of JP¥26.0b due beyond that. On the other hand, it had cash of JP¥48.0b and JP¥17.3b worth of receivables due within a year. So it can boast JP¥11.2b more liquid assets than total liabilities.

This short term liquidity is a sign that Nishikawa Rubber could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Nishikawa Rubber has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Nishikawa Rubber

It is just as well that Nishikawa Rubber's load is not too heavy, because its EBIT was down 22% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Nishikawa Rubber's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Nishikawa Rubber 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. Over the last three years, Nishikawa Rubber actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Nishikawa Rubber has net cash of JP¥23.2b, as well as more liquid assets than liabilities. The cherry on top was that in converted 115% of that EBIT to free cash flow, bringing in JP¥6.4b. So we are not troubled with Nishikawa Rubber's debt use. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Nishikawa Rubber is showing 1 warning sign in our investment analysis , you should know about...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.