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华尔街日报Hamamatsu Photonics K.K (TSE:6965) 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. As with many other companies Hamamatsu Photonics K.K. (TSE:6965) makes use of debt. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is Hamamatsu Photonics K.K's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Hamamatsu Photonics K.K had JP¥66.1b of debt, an increase on JP¥36.9b, over one year. However, its balance sheet shows it holds JP¥97.1b in cash, so it actually has JP¥31.0b net cash.
How Strong Is Hamamatsu Photonics K.K's Balance Sheet?
We can see from the most recent balance sheet that Hamamatsu Photonics K.K had liabilities of JP¥108.5b falling due within a year, and liabilities of JP¥23.0b due beyond that. On the other hand, it had cash of JP¥97.1b and JP¥46.3b worth of receivables due within a year. So it can boast JP¥11.8b more liquid assets than total liabilities.
This surplus suggests that Hamamatsu Photonics K.K has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Hamamatsu Photonics K.K has more cash than debt is arguably a good indication that it can manage its debt safely.
See our latest analysis for Hamamatsu Photonics K.K
In fact Hamamatsu Photonics K.K's saving grace is its low debt levels, because its EBIT has tanked 50% in the last twelve months. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Hamamatsu Photonics K.K's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Hamamatsu Photonics K.K 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. Over the last three years, Hamamatsu Photonics K.K reported free cash flow worth 12% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.
Summing Up
While we empathize with investors who find debt concerning, you should keep in mind that Hamamatsu Photonics K.K has net cash of JP¥31.0b, as well as more liquid assets than liabilities. So we don't have any problem with Hamamatsu Photonics K.K's use of debt. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should be aware of the 3 warning signs we've spotted with Hamamatsu Photonics K.K .
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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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.