Is Appier Group (TSE:4180) A Risky Investment?

Warren Buffett famously said, '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. We note that Appier Group, Inc. (TSE:4180) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Appier Group

What Is Appier Group's Net Debt?

As you can see below, Appier Group had JP¥600.0m of debt at March 2024, down from JP¥2.17b a year prior. However, it does have JP¥19.0b in cash offsetting this, leading to net cash of JP¥18.4b.

How Strong Is Appier Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Appier Group had liabilities of JP¥6.30b due within 12 months and liabilities of JP¥2.08b due beyond that. On the other hand, it had cash of JP¥19.0b and JP¥3.82b worth of receivables due within a year. So it can boast JP¥14.5b more liquid assets than total liabilities.

This surplus suggests that Appier Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Appier Group has more cash than debt is arguably a good indication that it can manage its debt safely.

Although Appier Group made a loss at the EBIT level, last year, it was also good to see that it generated JP¥643m in EBIT over the last twelve months. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Appier 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Appier 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. During the last year, Appier Group burned a lot of cash. While investors are no doubt expecting a reversal of that situation in due course, it clearly does mean its use of debt is more risky.

Summing Up

While it is always sensible to investigate a company's debt, in this case Appier Group has JP¥18.4b in net cash and a decent-looking balance sheet. So we are not troubled with Appier Group's debt use. 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 instance, we've identified 2 warning signs for Appier Group (1 is a bit unpleasant) you should be aware of.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.

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