Is Sanyo Engineering & Construction (TSE:1960) Using Too Much Debt?

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Sanyo Engineering & Construction Inc. (TSE:1960) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Sanyo Engineering & Construction Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Sanyo Engineering & Construction had JP¥3.30b of debt, an increase on JP¥2.66b, over one year. But on the other hand it also has JP¥10.2b in cash, leading to a JP¥6.92b net cash position.

A Look At Sanyo Engineering & Construction's Liabilities

We can see from the most recent balance sheet that Sanyo Engineering & Construction had liabilities of JP¥19.4b falling due within a year, and liabilities of JP¥1.71b due beyond that. Offsetting these obligations, it had cash of JP¥10.2b as well as receivables valued at JP¥19.1b due within 12 months. So it actually has JP¥8.24b more liquid assets than total liabilities.

This surplus liquidity suggests that Sanyo Engineering & Construction's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Sanyo Engineering & Construction boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Sanyo Engineering & Construction

Better yet, Sanyo Engineering & Construction grew its EBIT by 1,634% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. There's no doubt that we learn most about debt from the balance sheet. But it is Sanyo Engineering & Construction's earnings that will influence how the balance sheet holds up in the future. 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, a company can only pay off debt with cold hard cash, not accounting profits. While Sanyo Engineering & Construction 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. During the last two years, Sanyo Engineering & Construction burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Sanyo Engineering & Construction has net cash of JP¥6.92b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 1,634% over the last year. So is Sanyo Engineering & Construction's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Sanyo Engineering & Construction is showing 2 warning signs in our investment analysis , and 1 of those is potentially serious...

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.

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 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.