Does Nippon Television Holdings (TSE:9404) Have A Healthy Balance Sheet?

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.' 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. Importantly, Nippon Television Holdings, Inc. (TSE:9404) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Nippon Television Holdings's Net Debt?

The image below, which you can click on for greater detail, shows that Nippon Television Holdings had debt of JP¥4.42b at the end of December 2024, a reduction from JP¥6.27b over a year. However, its balance sheet shows it holds JP¥177.8b in cash, so it actually has JP¥173.4b net cash.

How Healthy Is Nippon Television Holdings' Balance Sheet?

We can see from the most recent balance sheet that Nippon Television Holdings had liabilities of JP¥105.1b falling due within a year, and liabilities of JP¥150.1b due beyond that. On the other hand, it had cash of JP¥177.8b and JP¥107.1b worth of receivables due within a year. So it actually has JP¥29.7b more liquid assets than total liabilities.

This short term liquidity is a sign that Nippon Television Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Nippon Television Holdings has more cash than debt is arguably a good indication that it can manage its debt safely.

Check out our latest analysis for Nippon Television Holdings

Also good is that Nippon Television Holdings grew its EBIT at 14% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Nippon Television Holdings 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 Nippon Television Holdings 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. During the last three years, Nippon Television Holdings produced sturdy free cash flow equating to 76% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Nippon Television Holdings has JP¥173.4b in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of JP¥34b, being 76% of its EBIT. So we don't think Nippon Television Holdings's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Nippon Television Holdings's earnings per share history for free.

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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.