Is GMO internet (TSE:4784) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 GMO internet, Inc. (TSE:4784) makes use of debt. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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.

How Much Debt Does GMO internet Carry?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 GMO internet had JP¥7.86b of debt, an increase on none, over one year. But on the other hand it also has JP¥9.62b in cash, leading to a JP¥1.76b net cash position.

How Strong Is GMO internet's Balance Sheet?

According to the last reported balance sheet, GMO internet had liabilities of JP¥30.3b due within 12 months, and liabilities of JP¥6.64b due beyond 12 months. On the other hand, it had cash of JP¥9.62b and JP¥11.9b worth of receivables due within a year. So it has liabilities totalling JP¥15.4b more than its cash and near-term receivables, combined.

Since publicly traded GMO internet shares are worth a total of JP¥696.9b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, GMO internet boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for GMO internet

It was also good to see that despite losing money on the EBIT line last year, GMO internet turned things around in the last 12 months, delivering and EBIT of JP¥1.7b. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine GMO internet's ability to maintain a healthy balance sheet going forward. 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. GMO internet 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. Over the last year, GMO internet recorded negative free cash flow, in total. Debt is far more risky for companies with unreliable free cash flow, so shareholders should be hoping that the past expenditure will produce free cash flow in the future.

Summing Up

We could understand if investors are concerned about GMO internet's liabilities, but we can be reassured by the fact it has has net cash of JP¥1.76b. So we are not troubled with GMO internet's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with GMO internet , and understanding them should be part of your investment process.

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.