Nasdaq
华尔街日报Kyushu Electric Power Company (TSE:9508) Has A Somewhat Strained 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 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 Kyushu Electric Power Company, Incorporated (TSE:9508) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.
What Is Kyushu Electric Power Company's Debt?
The chart below, which you can click on for greater detail, shows that Kyushu Electric Power Company had JP¥3.80t in debt in September 2025; about the same as the year before. However, it also had JP¥376.0b in cash, and so its net debt is JP¥3.43t.
How Healthy Is Kyushu Electric Power Company's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Kyushu Electric Power Company had liabilities of JP¥1.15t due within 12 months and liabilities of JP¥3.59t due beyond that. On the other hand, it had cash of JP¥376.0b and JP¥259.8b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥4.11t.
This deficit casts a shadow over the JP¥808.7b company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, Kyushu Electric Power Company would likely require a major re-capitalisation if it had to pay its creditors today.
View our latest analysis for Kyushu Electric Power Company
We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Strangely Kyushu Electric Power Company has a sky high EBITDA ratio of 6.6, implying high debt, but a strong interest coverage of 11.3. So either it has access to very cheap long term debt or that interest expense is going to grow! It is well worth noting that Kyushu Electric Power Company's EBIT shot up like bamboo after rain, gaining 67% in the last twelve months. That'll make it easier to manage its debt. 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 Kyushu 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.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we always check how much of that EBIT is translated into free cash flow. During the last three years, Kyushu Electric Power Company 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.
Our View
We feel some trepidation about Kyushu Electric Power Company's difficulty level of total liabilities, but we've got positives to focus on, too. To wit both its EBIT growth rate and interest cover were encouraging signs. It's also worth noting that Kyushu Electric Power Company is in the Electric Utilities industry, which is often considered to be quite defensive. Looking at all the angles mentioned above, it does seem to us that Kyushu Electric Power Company is a somewhat risky investment as a result of its debt. That's not necessarily a bad thing, since leverage can boost returns on equity, but it is something to be aware of. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Kyushu Electric Power Company (at least 2 which don't sit too well with us) , and understanding them should be part of your investment process.
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.