These 4 Measures Indicate That Appier Group (TSE:4180) Is Using Debt Reasonably Well

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 Appier Group, Inc. (TSE:4180) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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.

What Is Appier Group's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Appier Group had debt of JP¥1.50b, up from JP¥600.0m in one year. But on the other hand it also has JP¥18.0b in cash, leading to a JP¥16.5b net cash position.

How Strong Is Appier Group's Balance Sheet?

We can see from the most recent balance sheet that Appier Group had liabilities of JP¥8.67b falling due within a year, and liabilities of JP¥1.65b due beyond that. Offsetting these obligations, it had cash of JP¥18.0b as well as receivables valued at JP¥9.59b due within 12 months. So it can boast JP¥17.3b more liquid assets than total liabilities.

This short term liquidity is a sign that Appier Group could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Appier Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Appier Group

Better yet, Appier Group grew its EBIT by 263% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. 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 company can only pay off debt with cold hard cash, not accounting profits. 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. Over the last two years, Appier Group saw substantial negative free cash flow, in total. 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¥16.5b in net cash and a decent-looking balance sheet. And we liked the look of last year's 263% year-on-year EBIT growth. So we don't have any problem with Appier Group's use of debt. 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 potentially serious) you should be aware of.

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.