As shown in Annexe 1, Tsutsumi’s market capitalisation is approximately ¥362 billion (■), while its cash holdings total ¥354 billion (■). The company also has negligible interest-bearing debt. On the liabilities and net assets side, the balance sheet is overwhelmingly composed of equity (■), resulting in an equity ratio as high as 98%.

Tsutsumi’s balance sheet structure is unequivocally distorted and demands urgent correction. The concept of the cost of capital dictates that “a company creates value by utilising its assets to generate returns that exceed the expectations of its capital providers, such as shareholders and banks.” However, when cash are hoarded to the extent seen in Tsutsumi’s case, it becomes difficult to argue that investor expectations are being met.

As shown in Annexe 2, Tsutsumi’s price-to-book ratio (PBR) stands at 0.54×, an exceptionally low level.

The primary cause of this extraordinarily low PBR can be attributed to the distorted balance sheet structure discussed above. Additionally, as detailed below, the lack of initiatives to mitigate business risks is also believed to contribute to this valuation.

As shown in Annexe 3, Tsutsumi’s value of operations is estimated at ¥2.9 billion, significantly undervalued compared to its market capitalisation of ¥362 billion. One of the reasons for this low valuation is that the company has been hoarding cash instead of effectively deploying it within its business operations.

Additionally, as shown in Annexe 4, Tsutsumi’s ROE is at an extremely low level. This is partly a result of the accumulation of equity caused by excessive cash reserves. When a company holds substantial excess cash, adjustments (*) are required to properly calculate the cost of equity. Holding such large cash reserves not only reduces capital efficiency but also complicates the calculation of cost of equity. Therefore, it is imperative for the company to calculate and disclose the level of cost of equity it recognises. However, Tsutsumi has failed to provide any such disclosure.

(*) Adjustment methods include the concept of "negative leverage," whereby net surplus cash is subtracted from market capitalisation as a negative item. For more details, refer to “Revisiting Cash Holdings and Corporate Value Assessment” by Kazunari Suzuki (Securities Analysts Journal, April 2024, p. 57 onward). Another method involves applying a discount to cash holdings, as discussed in Ryohei Yanagi’s article “Is ¥100 of Cash Held by Japanese Companies Worth Only ¥50? The Impact of ESG’s G on Corporate Value” (Diamond Online, 18 August 2022).

As detailed in Annexe 10, independent external directors are expected to serve as advocates for shareholders, particularly in boardrooms where their role is to enhance shareholders’ value. This expectation is especially pronounced in companies like Tsutsumi, where a large portion of shares is held by the founding family. Independent external directors are tasked with ensuring that the opinions of minority shareholders are appropriately reflected in board decisions.

However, as shown in Annexe 11, Tsutsumi’s independent external directors have served excessively long tenures of 10 and 11 years as of June 2025. Furthermore, both directors have advisory relationships with the company—one as the representative of a tax advisory firm and the other as a partner lawyer of a legal advisory firm engaged by Tsutsumi.

This situation raises serious concerns about the "independence" of these directors. More importantly, it casts doubt on their ability to fulfill their critical responsibility of ensuring that the voices of minority shareholders are appropriately reflected in board decisions.