AppliedLtd (TSE:3020) Could Easily Take On More Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Applied Co.,Ltd. (TSE:3020) does carry debt. But the more important question is: how much risk is that debt creating?

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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. If things get really bad, the lenders can take control of the business. 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.

How Much Debt Does AppliedLtd Carry?

As you can see below, AppliedLtd had JP¥343.0m of debt at September 2025, down from JP¥491.0m a year prior. However, its balance sheet shows it holds JP¥6.92b in cash, so it actually has JP¥6.58b net cash.

A Look At AppliedLtd's Liabilities

We can see from the most recent balance sheet that AppliedLtd had liabilities of JP¥7.53b falling due within a year, and liabilities of JP¥700.0m due beyond that. On the other hand, it had cash of JP¥6.92b and JP¥6.65b worth of receivables due within a year. So it can boast JP¥5.34b more liquid assets than total liabilities.

This surplus strongly suggests that AppliedLtd has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, AppliedLtd boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for AppliedLtd

In addition to that, we're happy to report that AppliedLtd has boosted its EBIT by 37%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since AppliedLtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While AppliedLtd 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, AppliedLtd recorded free cash flow worth a fulsome 81% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that AppliedLtd has net cash of JP¥6.58b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of JP¥3.2b, being 81% of its EBIT. At the end of the day we're not concerned about AppliedLtd's debt. 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. Case in point: We've spotted 2 warning signs for AppliedLtd you should be aware of.

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.