Here's Why Yasunaga (TSE:7271) Has A Meaningful Debt Burden

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.' 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. As with many other companies Yasunaga Corporation (TSE:7271) makes use of debt. But should shareholders be worried about its use of debt?AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. What Risk Does Debt Bring? 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 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 Yasunaga's Debt? As you can see below, Yasunaga had JP¥16.2b of debt at June 2025, down from JP¥17.2b a year prior. However, it also had JP¥5.47b in cash, and so its net debt is JP¥10.7b. TSE:7271 Debt to Equity History November 17th 2025 How Healthy Is Yasunaga's Balance Sheet? According to the last reported balance sheet, Yasunaga had liabilities of JP¥15.5b due within 12 months, and liabilities of JP¥8.83b due beyond 12 months. Offsetting these obligations, it had cash of JP¥5.47b as well as receivables valued at JP¥6.46b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥12.4b. When you consider that this deficiency exceeds the company's JP¥10.4b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. See our latest analysis for Yasunaga We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). 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). Yasunaga has net debt to EBITDA of 3.5 suggesting it uses a fair bit of leverage to boost returns. On the plus side, its EBIT was 8.3 times its interest expense, and its net debt to EBITDA, was quite high, at 3.5. Pleasingly, Yasunaga is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 268% gain in the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Yasunaga's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot. 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. Considering the last three years, Yasunaga actually recorded a cash outflow, overall. Debt is usually more expensive, and almost always more risky in the hands of a company with negative free cash flow. Shareholders ought to hope for an improvement. Our View To be frank both Yasunaga's level of total liabilities and its track record of converting EBIT to free cash flow make us rather uncomfortable with its debt levels. But at least it's pretty decent at growing its EBIT; that's encouraging. Looking at the balance sheet and taking into account all these factors, we do believe that debt is making Yasunaga stock a bit risky. That's not necessarily a bad thing, but we'd generally feel more comfortable with less leverage. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 3 warning signs for Yasunaga (of which 2 are concerning!) you should know about. 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.