Kitazawa Sangyo Co., Ltd. (TSE:9930) carries some debt, but its balance sheet is relatively strong, and the company isn’t facing significant risk from its liabilities. Here’s a breakdown of the key points from the analysis:
Key Takeaways:
Net Cash Position: As of September 2024, Kitazawa Sangyo has JP¥2.12 billion in debt, which is roughly the same as the previous year. However, the company holds JP¥3.79 billion in cash, leading to a net cash position of JP¥1.67 billion. This indicates the company is not overburdened by debt, but has more cash than liabilities.
Liabilities vs. Cash and Receivables: Kitazawa Sangyo has short-term liabilities amounting to JP¥6.21 billion and long-term liabilities of JP¥988 million. However, it also has cash of JP¥3.79 billion and receivables of JP¥2.64 billion, meaning its liabilities exceed its liquid assets by JP¥770 million. Given its market cap of JP¥7.05 billion, these liabilities are manageable, though it’s worth monitoring.
EBIT Growth: The company has increased its EBIT (earnings before interest and tax) by 6.4% over the past year, which should provide confidence in its ability to handle debt repayment in the future.
Free Cash Flow: Over the past three years, Kitazawa Sangyo has mostly broken even in terms of free cash flow, which is important when assessing the company’s ability to generate cash to pay off liabilities. While breaking even isn’t necessarily bad, it’s preferable to see positive free cash flow, especially when the company has debt obligations.
Conclusion:
While Kitazawa Sangyo’s balance sheet is not exceptionally strong due to its liabilities, it does have a net cash position of JP¥1.67 billion, which is a good sign. The growth in EBIT is also encouraging, suggesting that it’s managing its debt reasonably well. However, investors should remain cautious about its ability to convert earnings into substantial free cash flow, as the company has largely broken even in this regard.
Despite its manageable debt load, there are 2 warning signs for Kitazawa Sangyo to be aware of before considering an investment. If you’re interested in companies that are growing profits without relying on debt, you can explore a free list of businesses with net cash on the balance sheet.
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