Daikin IndustriesLtd (TSE:6367) Seems To Use Debt Quite Sensibly
Warren Buffett famously said, '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 Daikin Industries,Ltd. (TSE:6367) makes use of debt. But the real question is whether this debt is making the company risky.
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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Daikin IndustriesLtd's Debt?
You can click the graphic below for the historical numbers, but it shows that as of September 2025 Daikin IndustriesLtd had JP¥862.4b of debt, an increase on JP¥802.4b, over one year. However, it does have JP¥876.3b in cash offsetting this, leading to net cash of JP¥13.9b.
How Healthy Is Daikin IndustriesLtd's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Daikin IndustriesLtd had liabilities of JP¥1.51t due within 12 months and liabilities of JP¥812.3b due beyond that. Offsetting these obligations, it had cash of JP¥876.3b as well as receivables valued at JP¥822.8b due within 12 months. So its liabilities total JP¥621.3b more than the combination of its cash and short-term receivables.
Since publicly traded Daikin IndustriesLtd shares are worth a very impressive total of JP¥5.86t, 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. While it does have liabilities worth noting, Daikin IndustriesLtd also has more cash than debt, so we're pretty confident it can manage its debt safely.
Check out our latest analysis for Daikin IndustriesLtd
Daikin IndustriesLtd's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Daikin IndustriesLtd 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 company can only pay off debt with cold hard cash, not accounting profits. While Daikin IndustriesLtd 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. In the last three years, Daikin IndustriesLtd's free cash flow amounted to 43% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.
Summing Up
Although Daikin IndustriesLtd's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of JP¥13.9b. So we are not troubled with Daikin IndustriesLtd's debt use. Over time, share prices tend to follow earnings per share, so if you're interested in Daikin IndustriesLtd, you may well want to click here to check an interactive graph of its earnings per share history.
If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.
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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.