Is BSN Media Holdings (TSE:9408) Using Too Much Debt?

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 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. We note that BSN Media Holdings, Inc. (TSE:9408) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is BSN Media Holdings's Net Debt?

As you can see below, BSN Media Holdings had JP¥477.0m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. But it also has JP¥9.09b in cash to offset that, meaning it has JP¥8.62b net cash.

How Strong Is BSN Media Holdings' Balance Sheet?

According to the last reported balance sheet, BSN Media Holdings had liabilities of JP¥5.15b due within 12 months, and liabilities of JP¥2.68b due beyond 12 months. Offsetting this, it had JP¥9.09b in cash and JP¥5.78b in receivables that were due within 12 months. So it actually has JP¥7.05b more liquid assets than total liabilities.

This surplus liquidity suggests that BSN Media Holdings' balance sheet could take a hit just as well as Homer Simpson's head can take a punch. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, BSN Media Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for BSN Media Holdings

Also positive, BSN Media Holdings grew its EBIT by 28% in the last year, and that should make it easier to pay down debt, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But it is BSN Media Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While BSN Media Holdings 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. Looking at the most recent three years, BSN Media Holdings recorded free cash flow of 47% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that BSN Media Holdings has net cash of JP¥8.62b, as well as more liquid assets than liabilities. And we liked the look of last year's 28% year-on-year EBIT growth. So is BSN Media Holdings's debt a risk? It doesn't seem so to us. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for BSN Media Holdings (of which 1 can't be ignored!) you should know about.

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.