Here's Why Resorttrust (TSE:4681) Can Manage Its Debt Responsibly
Warren Buffett famously said, '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. We can see that Resorttrust, Inc. (TSE:4681) does use debt in its business. But the real question is whether this debt is making the company risky.
When Is Debt A Problem?
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. 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. 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.
How Much Debt Does Resorttrust Carry?
The image below, which you can click on for greater detail, shows that Resorttrust had debt of JP¥10.3b at the end of September 2025, a reduction from JP¥15.4b over a year. But it also has JP¥38.2b in cash to offset that, meaning it has JP¥27.9b net cash.
A Look At Resorttrust's Liabilities
According to the last reported balance sheet, Resorttrust had liabilities of JP¥181.4b due within 12 months, and liabilities of JP¥176.9b due beyond 12 months. Offsetting these obligations, it had cash of JP¥38.2b as well as receivables valued at JP¥131.3b due within 12 months. So it has liabilities totalling JP¥188.7b more than its cash and near-term receivables, combined.
While this might seem like a lot, it is not so bad since Resorttrust has a market capitalization of JP¥418.9b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Resorttrust also has more cash than debt, so we're pretty confident it can manage its debt safely.
See our latest analysis for Resorttrust
Also good is that Resorttrust grew its EBIT at 10% over the last year, further increasing its ability to manage debt. 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 Resorttrust can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Resorttrust 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, Resorttrust recorded free cash flow worth a fulsome 91% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.
Summing Up
While Resorttrust does have more liabilities than liquid assets, it also has net cash of JP¥27.9b. And it impressed us with free cash flow of JP¥23b, being 91% of its EBIT. So is Resorttrust's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in Resorttrust, you may well want to click here to check an interactive graph of its earnings per share history.
If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.
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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.