Is Hoshizaki (TSE:6465) A Risky Investment?

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.' 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 can see that Hoshizaki Corporation (TSE:6465) does use debt in its business. But the real question is whether this debt is making the company risky.

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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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

What Is Hoshizaki's Net Debt?

The image below, which you can click on for greater detail, shows that Hoshizaki had debt of JP¥5.35b at the end of September 2025, a reduction from JP¥5.73b over a year. But on the other hand it also has JP¥167.5b in cash, leading to a JP¥162.2b net cash position.

A Look At Hoshizaki's Liabilities

According to the last reported balance sheet, Hoshizaki had liabilities of JP¥142.0b due within 12 months, and liabilities of JP¥28.3b due beyond 12 months. On the other hand, it had cash of JP¥167.5b and JP¥81.0b worth of receivables due within a year. So it can boast JP¥78.3b more liquid assets than total liabilities.

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

View our latest analysis for Hoshizaki

Fortunately, Hoshizaki grew its EBIT by 7.8% in the last year, making that debt load look even more manageable. 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 Hoshizaki can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Hoshizaki 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, Hoshizaki produced sturdy free cash flow equating to 58% 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 Hoshizaki has net cash of JP¥162.2b, as well as more liquid assets than liabilities. So we don't think Hoshizaki's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Hoshizaki, you may well want to click here to check an interactive graph of its earnings per share history.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.