Is Konami Group (TSE:9766) A Risky Investment?

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. We can see that Konami Group Corporation (TSE:9766) does use debt in its business. But is this debt a concern to shareholders?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Konami Group

How Much Debt Does Konami Group Carry?

As you can see below, Konami Group had JP¥59.9b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. But it also has JP¥273.9b in cash to offset that, meaning it has JP¥214.0b net cash.

How Strong Is Konami Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Konami Group had liabilities of JP¥78.7b due within 12 months and liabilities of JP¥91.7b due beyond that. Offsetting these obligations, it had cash of JP¥273.9b as well as receivables valued at JP¥37.8b due within 12 months. So it can boast JP¥141.2b more liquid assets than total liabilities.

This surplus suggests that Konami Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Konami Group boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Konami Group has boosted its EBIT by 95%, thus reducing the spectre of future debt repayments. 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 Konami Group'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Konami Group 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, Konami Group recorded free cash flow worth 67% 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 we empathize with investors who find debt concerning, you should keep in mind that Konami Group has net cash of JP¥214.0b, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 95% over the last year. So is Konami Group's debt a risk? It doesn't seem so to us. 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 Konami Group's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.