Konami Group (TSE:9766) Has A Rock Solid Balance Sheet

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.' 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. As with many other companies Konami Group Corporation (TSE:9766) makes use of debt. But the real question is whether this debt is making the company risky.

Our free stock report includes 1 warning sign investors should be aware of before investing in Konami Group. Read for free now.

What Risk Does Debt Bring?

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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Konami Group's Debt?

As you can see below, Konami Group had JP¥59.9b of debt, at December 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have JP¥285.7b in cash offsetting this, leading to net cash of JP¥225.8b.

How Healthy Is Konami Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Konami Group had liabilities of JP¥105.7b due within 12 months and liabilities of JP¥68.8b due beyond that. Offsetting these obligations, it had cash of JP¥285.7b as well as receivables valued at JP¥51.6b due within 12 months. So it actually has JP¥162.9b more liquid assets than total liabilities.

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

Check out our latest analysis for Konami Group

On top of that, Konami Group grew its EBIT by 65% over the last twelve months, and that growth will make it easier to handle its debt. 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 Konami Group 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Konami Group 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 most recent three years, Konami Group recorded free cash flow worth 54% 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 Konami Group has JP¥225.8b in net cash and a decent-looking balance sheet. And we liked the look of last year's 65% year-on-year EBIT growth. So is Konami Group's debt a risk? It doesn't seem so to us. 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. For example - Konami Group has 1 warning sign we think you should be aware of.

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.