Here's Why CyberAgent (TSE:4751) Can Manage Its Debt Responsibly

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, CyberAgent, Inc. (TSE:4751) does carry debt. But is this debt a concern to shareholders?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for CyberAgent

What Is CyberAgent's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2024 CyberAgent had JP¥106.8b of debt, an increase on JP¥69.3b, over one year. However, it does have JP¥204.5b in cash offsetting this, leading to net cash of JP¥97.7b.

A Look At CyberAgent's Liabilities

According to the last reported balance sheet, CyberAgent had liabilities of JP¥164.3b due within 12 months, and liabilities of JP¥96.0b due beyond 12 months. Offsetting this, it had JP¥204.5b in cash and JP¥113.7b in receivables that were due within 12 months. So it can boast JP¥57.9b more liquid assets than total liabilities.

This short term liquidity is a sign that CyberAgent could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, CyberAgent boasts net cash, so it's fair to say it does not have a heavy debt load!

But the bad news is that CyberAgent has seen its EBIT plunge 17% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. 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 CyberAgent 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. CyberAgent may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Looking at the most recent three years, CyberAgent recorded free cash flow of 50% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case CyberAgent has JP¥97.7b in net cash and a decent-looking balance sheet. So we are not troubled with CyberAgent's debt use. 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. For example - CyberAgent has 1 warning sign we think you should be aware of.

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.

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