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華爾街日報Shin-Etsu Chemical (TSE:4063) Has A Pretty Healthy Balance Sheet
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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Shin-Etsu Chemical Co., Ltd. (TSE:4063) does use debt in its business. But is this debt a concern to shareholders?
When Is Debt Dangerous?
Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.
How Much Debt Does Shin-Etsu Chemical Carry?
As you can see below, at the end of September 2025, Shin-Etsu Chemical had JP¥243.9b of debt, up from JP¥19.8b a year ago. Click the image for more detail. However, it does have JP¥1.54t in cash offsetting this, leading to net cash of JP¥1.30t.
How Healthy Is Shin-Etsu Chemical's Balance Sheet?
The latest balance sheet data shows that Shin-Etsu Chemical had liabilities of JP¥495.7b due within a year, and liabilities of JP¥479.6b falling due after that. Offsetting this, it had JP¥1.54t in cash and JP¥548.2b in receivables that were due within 12 months. So it can boast JP¥1.12t more liquid assets than total liabilities.
This short term liquidity is a sign that Shin-Etsu Chemical could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Shin-Etsu Chemical boasts net cash, so it's fair to say it does not have a heavy debt load!
Check out our latest analysis for Shin-Etsu Chemical
On the other hand, Shin-Etsu Chemical saw its EBIT drop by 7.5% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Shin-Etsu Chemical 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, a company can only pay off debt with cold hard cash, not accounting profits. Shin-Etsu Chemical may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, Shin-Etsu Chemical produced sturdy free cash flow equating to 53% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that Shin-Etsu Chemical has net cash of JP¥1.30t, as well as more liquid assets than liabilities. So we don't have any problem with Shin-Etsu Chemical's use of 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. We've identified 1 warning sign with Shin-Etsu Chemical , and understanding them should be part of your investment process.
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.