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These 4 Measures Indicate That KIMURA KOHKILtd (TSE:6231) Is Using Debt Reasonably Well

Simply Wall St · 1d ago

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, KIMURA KOHKI Co.,Ltd. (TSE:6231) does carry debt. But should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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, 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is KIMURA KOHKILtd's Debt?

As you can see below, at the end of September 2025, KIMURA KOHKILtd had JP¥4.92b of debt, up from JP¥4.40b a year ago. Click the image for more detail. On the flip side, it has JP¥2.30b in cash leading to net debt of about JP¥2.61b.

debt-equity-history-analysis
TSE:6231 Debt to Equity History December 10th 2025

How Healthy Is KIMURA KOHKILtd's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that KIMURA KOHKILtd had liabilities of JP¥4.17b due within 12 months and liabilities of JP¥6.34b due beyond that. Offsetting this, it had JP¥2.30b in cash and JP¥5.90b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥2.30b.

Since publicly traded KIMURA KOHKILtd shares are worth a total of JP¥49.4b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse.

See our latest analysis for KIMURA KOHKILtd

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

KIMURA KOHKILtd has a low net debt to EBITDA ratio of only 0.53. And its EBIT covers its interest expense a whopping 65.0 times over. So you could argue it is no more threatened by its debt than an elephant is by a mouse. On top of that, KIMURA KOHKILtd grew its EBIT by 58% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine KIMURA KOHKILtd'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.

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. In the last three years, KIMURA KOHKILtd created free cash flow amounting to 6.5% of its EBIT, an uninspiring performance. That limp level of cash conversion undermines its ability to manage and pay down debt.

Our View

Happily, KIMURA KOHKILtd's impressive interest cover implies it has the upper hand on its debt. But we must concede we find its conversion of EBIT to free cash flow has the opposite effect. Taking all this data into account, it seems to us that KIMURA KOHKILtd takes a pretty sensible approach to debt. While that brings some risk, it can also enhance returns for shareholders. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For instance, we've identified 1 warning sign for KIMURA KOHKILtd that you should be aware of.

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.