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Fuji Oil (TSE:2607) Takes On Some Risk With Its Use Of Debt

Simply Wall St · 2d ago

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Fuji Oil Co., Ltd. (TSE:2607) makes use of debt. But the more important question is: how much risk is that debt creating?

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Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Fuji Oil's Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2025 Fuji Oil had JP¥309.5b of debt, an increase on JP¥192.9b, over one year. However, it does have JP¥45.4b in cash offsetting this, leading to net debt of about JP¥264.1b.

debt-equity-history-analysis
TSE:2607 Debt to Equity History January 6th 2026

How Strong Is Fuji Oil's Balance Sheet?

We can see from the most recent balance sheet that Fuji Oil had liabilities of JP¥293.8b falling due within a year, and liabilities of JP¥133.4b due beyond that. Offsetting this, it had JP¥45.4b in cash and JP¥123.4b in receivables that were due within 12 months. So its liabilities total JP¥258.5b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of JP¥329.3b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution.

View our latest analysis for Fuji Oil

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). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Fuji Oil has a rather high debt to EBITDA ratio of 6.7 which suggests a meaningful debt load. But the good news is that it boasts fairly comforting interest cover of 3.1 times, suggesting it can responsibly service its obligations. Looking on the bright side, Fuji Oil boosted its EBIT by a silky 36% in the last year. Like the milk of human kindness that sort of growth increases resilience, making the company more capable of managing debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Fuji Oil'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. So we always check how much of that EBIT is translated into free cash flow. During the last three years, Fuji Oil burned a lot of cash. While that may be a result of expenditure for growth, it does make the debt far more risky.

Our View

On the face of it, Fuji Oil's net debt to EBITDA left us tentative about the stock, and its conversion of EBIT to free cash flow was no more enticing than the one empty restaurant on the busiest night of the year. But on the bright side, its EBIT growth rate is a good sign, and makes us more optimistic. Once we consider all the factors above, together, it seems to us that Fuji Oil's debt is making it a bit risky. That's not necessarily a bad thing, but we'd generally feel more comfortable with less leverage. 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. For example, we've discovered 1 warning sign for Fuji Oil that you should be aware of before investing here.

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