These 4 Measures Indicate That Hisamitsu Pharmaceutical (TSE:4530) Is Using Debt Safely

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We can see that Hisamitsu Pharmaceutical Co., Inc. (TSE:4530) does use debt in its business. But is this debt a concern to shareholders?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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 Hisamitsu Pharmaceutical's Net Debt?

The image below, which you can click on for greater detail, shows that at August 2025 Hisamitsu Pharmaceutical had debt of JP¥2.38b, up from JP¥1.12b in one year. But on the other hand it also has JP¥112.9b in cash, leading to a JP¥110.5b net cash position.

A Look At Hisamitsu Pharmaceutical's Liabilities

Zooming in on the latest balance sheet data, we can see that Hisamitsu Pharmaceutical had liabilities of JP¥50.4b due within 12 months and liabilities of JP¥17.1b due beyond that. On the other hand, it had cash of JP¥112.9b and JP¥48.7b worth of receivables due within a year. So it can boast JP¥94.1b more liquid assets than total liabilities.

It's good to see that Hisamitsu Pharmaceutical has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. Succinctly put, Hisamitsu Pharmaceutical boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for Hisamitsu Pharmaceutical

On top of that, Hisamitsu Pharmaceutical grew its EBIT by 31% over the last twelve months, and that growth will make it easier to handle its debt. 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 Hisamitsu Pharmaceutical 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Hisamitsu Pharmaceutical 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. Looking at the most recent three years, Hisamitsu Pharmaceutical recorded free cash flow of 23% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Hisamitsu Pharmaceutical has JP¥110.5b in net cash and a decent-looking balance sheet. And we liked the look of last year's 31% year-on-year EBIT growth. So we don't think Hisamitsu Pharmaceutical's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Hisamitsu Pharmaceutical's earnings per share history for free.

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.