We Think Namura Shipbuilding (TSE:7014) Can Manage Its Debt With Ease

Howard Marks put it nicely when he said 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 need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Namura Shipbuilding Co., Ltd. (TSE:7014) does use debt in its business. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Namura Shipbuilding's Debt?

As you can see below, at the end of September 2025, Namura Shipbuilding had JP¥16.4b of debt, up from JP¥12.3b a year ago. Click the image for more detail. However, it does have JP¥97.1b in cash offsetting this, leading to net cash of JP¥80.7b.

How Strong Is Namura Shipbuilding's Balance Sheet?

According to the last reported balance sheet, Namura Shipbuilding had liabilities of JP¥86.0b due within 12 months, and liabilities of JP¥28.6b due beyond 12 months. Offsetting this, it had JP¥97.1b in cash and JP¥45.2b in receivables that were due within 12 months. So it can boast JP¥27.6b more liquid assets than total liabilities.

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

See our latest analysis for Namura Shipbuilding

While Namura Shipbuilding doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. 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 Namura Shipbuilding can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Namura Shipbuilding 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, Namura Shipbuilding actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While it is always sensible to investigate a company's debt, in this case Namura Shipbuilding has JP¥80.7b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥26b, being 129% of its EBIT. So we don't think Namura Shipbuilding's use of debt is risky. 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. For example, we've discovered 1 warning sign for Namura Shipbuilding that you should be aware of before investing here.

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.