Fast Retailing (TSE:9983) Has A Rock Solid Balance Sheet

Simply Wall St · 03/12 06:44

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Fast Retailing Co., Ltd. (TSE:9983) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Fast Retailing

What Is Fast Retailing's Debt?

The image below, which you can click on for greater detail, shows that Fast Retailing had debt of JP¥211.2b at the end of November 2024, a reduction from JP¥241.1b over a year. But it also has JP¥1.65t in cash to offset that, meaning it has JP¥1.44t net cash.

debt-equity-history-analysis
TSE:9983 Debt to Equity History March 12th 2025

A Look At Fast Retailing's Liabilities

According to the last reported balance sheet, Fast Retailing had liabilities of JP¥928.2b due within 12 months, and liabilities of JP¥670.0b due beyond 12 months. Offsetting these obligations, it had cash of JP¥1.65t as well as receivables valued at JP¥181.8b due within 12 months. So it can boast JP¥229.8b more liquid assets than total liabilities.

This state of affairs indicates that Fast Retailing's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the JP¥14t company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Fast Retailing boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, Fast Retailing grew its EBIT by 23% in the last year, and that should make it easier to pay down debt, going forward. 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 Fast Retailing can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Fast Retailing 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, Fast Retailing actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While it is always sensible to investigate a company's debt, in this case Fast Retailing has JP¥1.44t in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥526b, being 102% of its EBIT. So is Fast Retailing's debt a risk? It doesn't seem so to us. Another factor that would give us confidence in Fast Retailing would be if insiders have been buying shares: if you're conscious of that signal too, you can find out instantly by clicking this link.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.