Legendary fund manager Li Lu (who Charlie Munger backed) once said, ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Tsumura & Co. (TSE:4540) does use debt in its business. But the real question is whether this debt is making the company risky.
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. If things get really bad, the lenders can take control of the business. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well – and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Tsumura’s Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Tsumura had JPÂ¥114.9b of debt, an increase on JPÂ¥71.4b, over one year. However, it does have JPÂ¥73.2b in cash offsetting this, leading to net debt of about JPÂ¥41.7b.
TSE:4540 Debt to Equity History January 10th 2026 How Healthy Is Tsumura’s Balance Sheet?
We can see from the most recent balance sheet that Tsumura had liabilities of JPÂ¥103.4b falling due within a year, and liabilities of JPÂ¥86.6b due beyond that. Offsetting this, it had JPÂ¥73.2b in cash and JPÂ¥75.3b in receivables that were due within 12 months. So it has liabilities totalling JPÂ¥41.5b more than its cash and near-term receivables, combined.
Given Tsumura has a market capitalization of JPÂ¥311.2b, it’s hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time.
View our latest analysis for Tsumura
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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
Tsumura has net debt of just 0.87 times EBITDA, suggesting it could ramp leverage without breaking a sweat. But the really cool thing is that it actually managed to receive more interest than it paid, over the last year. So it’s fair to say it can handle debt like a hotshot teppanyaki chef handles cooking. And we also note warmly that Tsumura grew its EBIT by 17% last year, making its debt load easier to handle. 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 Tsumura 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, a business needs free cash flow to pay off debt; accounting profits just don’t cut it. So it’s worth checking how much of that EBIT is backed by free cash flow. Over the last three years, Tsumura recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.
Our View
On our analysis Tsumura’s interest cover should signal that it won’t have too much trouble with its debt. However, our other observations weren’t so heartening. In particular, conversion of EBIT to free cash flow gives us cold feet. Considering this range of data points, we think Tsumura is in a good position to manage its debt levels. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we’ve spotted with Tsumura .
When all is said and done, sometimes its easier to focus on companies that don’t even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
Discover if Tsumura might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.