These 4 Measures Indicate That Tohoku Electric Power Company (TSE:9506) Is Using Debt Extensively

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Tohoku Electric Power Company, Incorporated (TSE:9506) does carry debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Tohoku Electric Power Company's Net Debt?

As you can see below, Tohoku Electric Power Company had JP¥3.40t of debt, at September 2025, which is about the same as the year before. You can click the chart for greater detail. However, because it has a cash reserve of JP¥545.5b, its net debt is less, at about JP¥2.85t.

A Look At Tohoku Electric Power Company's Liabilities

According to the last reported balance sheet, Tohoku Electric Power Company had liabilities of JP¥1.08t due within 12 months, and liabilities of JP¥3.27t due beyond 12 months. On the other hand, it had cash of JP¥545.5b and JP¥177.9b worth of receivables due within a year. So it has liabilities totalling JP¥3.62t more than its cash and near-term receivables, combined.

The deficiency here weighs heavily on the JP¥574.6b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Tohoku Electric Power Company would likely require a major re-capitalisation if it had to pay its creditors today.

View our latest analysis for Tohoku Electric Power Company

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

While Tohoku Electric Power Company's debt to EBITDA ratio of 5.9 suggests a heavy debt load, its interest coverage of 9.8 implies it services that debt with ease. Our best guess is that the company does indeed have significant debt obligations. Sadly, Tohoku Electric Power Company's EBIT actually dropped 4.1% in the last year. If that earnings trend continues then its debt load will grow heavy like the heart of a polar bear watching its sole cub. 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 Tohoku Electric Power Company 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. So it's worth checking how much of that EBIT is backed by free cash flow. In the last three years, Tohoku Electric Power Company created free cash flow amounting to 2.6% of its EBIT, an uninspiring performance. For us, cash conversion that low sparks a little paranoia about is ability to extinguish debt.

Our View

To be frank both Tohoku Electric Power Company's net debt to EBITDA and its track record of staying on top of its total liabilities make us rather uncomfortable with its debt levels. But on the bright side, its interest cover is a good sign, and makes us more optimistic. We should also note that Electric Utilities industry companies like Tohoku Electric Power Company commonly do use debt without problems. We're quite clear that we consider Tohoku Electric Power Company to be really rather risky, as a result of its balance sheet health. For this reason we're pretty cautious about the stock, and we think shareholders should keep a close eye on its liquidity. 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 Tohoku Electric Power Company is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.