We Think TV TOKYO Holdings (TSE:9413) Can Manage Its Debt With Ease

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies TV TOKYO Holdings Corporation (TSE:9413) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for TV TOKYO Holdings

What Is TV TOKYO Holdings's Debt?

The image below, which you can click on for greater detail, shows that at June 2024 TV TOKYO Holdings had debt of JP¥5.68b, up from JP¥5.10b in one year. But on the other hand it also has JP¥36.5b in cash, leading to a JP¥30.8b net cash position.

How Strong Is TV TOKYO Holdings' Balance Sheet?

According to the last reported balance sheet, TV TOKYO Holdings had liabilities of JP¥37.9b due within 12 months, and liabilities of JP¥3.98b due beyond 12 months. Offsetting this, it had JP¥36.5b in cash and JP¥31.6b in receivables that were due within 12 months. So it can boast JP¥26.1b more liquid assets than total liabilities.

This luscious liquidity implies that TV TOKYO Holdings' balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, TV TOKYO Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Also positive, TV TOKYO Holdings grew its EBIT by 21% in the last year, and that should make it easier to pay down debt, going forward. 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 TV TOKYO Holdings's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While TV TOKYO 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. Over the most recent three years, TV TOKYO Holdings recorded free cash flow worth 69% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 TV TOKYO Holdings has JP¥30.8b in net cash and a decent-looking balance sheet. And it impressed us with its EBIT growth of 21% over the last year. So is TV TOKYO Holdings's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 2 warning signs for TV TOKYO Holdings that you should be aware of before investing here.

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.