Is Golf Digest Online (TSE:3319) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Golf Digest Online Inc. (TSE:3319) makes use of debt. But the more important question is: how much risk is that debt creating?

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. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Golf Digest Online

What Is Golf Digest Online's Debt?

As you can see below, Golf Digest Online had JP¥21.2b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had JP¥2.09b in cash, and so its net debt is JP¥19.1b.

How Strong Is Golf Digest Online's Balance Sheet?

According to the last reported balance sheet, Golf Digest Online had liabilities of JP¥26.5b due within 12 months, and liabilities of JP¥22.0b due beyond 12 months. Offsetting this, it had JP¥2.09b in cash and JP¥3.84b in receivables that were due within 12 months. So it has liabilities totalling JP¥42.6b more than its cash and near-term receivables, combined.

This deficit casts a shadow over the JP¥8.68b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, Golf Digest Online would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Golf Digest Online 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.

Over 12 months, Golf Digest Online reported revenue of JP¥56b, which is a gain of 11%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Golf Digest Online produced an earnings before interest and tax (EBIT) loss. Indeed, it lost JP¥485m at the EBIT level. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely since it is low on liquid assets, and made a loss of JP¥1.6b in the last year. So while it's not wise to assume the company will fail, we do think it's risky. 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. To that end, you should learn about the 2 warning signs we've spotted with Golf Digest Online (including 1 which shouldn't be ignored) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's 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.