CKD (TSE:6407) Has A Pretty Healthy Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that CKD Corporation (TSE:6407) 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 A Problem?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is CKD's Debt?

The image below, which you can click on for greater detail, shows that CKD had debt of JP¥33.8b at the end of September 2025, a reduction from JP¥35.2b over a year. However, its balance sheet shows it holds JP¥37.5b in cash, so it actually has JP¥3.71b net cash.

A Look At CKD's Liabilities

We can see from the most recent balance sheet that CKD had liabilities of JP¥36.8b falling due within a year, and liabilities of JP¥34.7b due beyond that. Offsetting these obligations, it had cash of JP¥37.5b as well as receivables valued at JP¥43.5b due within 12 months. So it actually has JP¥9.48b more liquid assets than total liabilities.

This surplus suggests that CKD has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, CKD boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for CKD

Fortunately, CKD grew its EBIT by 9.3% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine CKD's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While CKD has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the last three years, CKD reported free cash flow worth 5.6% 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 it is always sensible to investigate a company's debt, in this case CKD has JP¥3.71b in net cash and a decent-looking balance sheet. And it also grew its EBIT by 9.3% over the last year. So we don't have any problem with CKD's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for CKD you should be aware of.

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.