These 4 Measures Indicate That Sysmex (TSE:6869) Is Using Debt Reasonably Well

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Sysmex Corporation (TSE:6869) does carry debt. But should shareholders be worried about its use of debt?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we think about a company's use of debt, we first look at cash and debt together.

What Is Sysmex's Debt?

The chart below, which you can click on for greater detail, shows that Sysmex had JP¥32.0b in debt in September 2025; about the same as the year before. However, it does have JP¥86.1b in cash offsetting this, leading to net cash of JP¥54.1b.

How Strong Is Sysmex's Balance Sheet?

We can see from the most recent balance sheet that Sysmex had liabilities of JP¥107.5b falling due within a year, and liabilities of JP¥78.7b due beyond that. On the other hand, it had cash of JP¥86.1b and JP¥152.3b worth of receivables due within a year. So it can boast JP¥52.1b more liquid assets than total liabilities.

This surplus suggests that Sysmex has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Sysmex has more cash than debt is arguably a good indication that it can manage its debt safely.

See our latest analysis for Sysmex

But the bad news is that Sysmex has seen its EBIT plunge 13% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. 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 Sysmex 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Sysmex may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, Sysmex recorded free cash flow of 33% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sysmex has JP¥54.1b in net cash and a decent-looking balance sheet. So we are not troubled with Sysmex's debt use. 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 Sysmex that you should be aware of.

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.

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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.