Is GMO internet group (TSE:9449) A Risky Investment?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, GMO internet group, Inc. (TSE:9449) does carry debt. But the more important question is: how much risk is that debt creating?

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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. 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. 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 GMO internet group's Debt?

The image below, which you can click on for greater detail, shows that at March 2025 GMO internet group had debt of JP¥563.4b, up from JP¥518.0b in one year. But on the other hand it also has JP¥933.0b in cash, leading to a JP¥369.6b net cash position.

How Strong Is GMO internet group's Balance Sheet?

We can see from the most recent balance sheet that GMO internet group had liabilities of JP¥1.51t falling due within a year, and liabilities of JP¥343.4b due beyond that. Offsetting this, it had JP¥933.0b in cash and JP¥62.6b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by JP¥856.6b.

This deficit casts a shadow over the JP¥365.1b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, GMO internet group would probably need a major re-capitalization if its creditors were to demand repayment. Given that GMO internet group has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total.

See our latest analysis for GMO internet group

While GMO internet group doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. 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 GMO internet 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. GMO internet 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. Looking at the most recent three years, GMO internet group recorded free cash flow of 40% of its EBIT, which is weaker than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While GMO internet group does have more liabilities than liquid assets, it also has net cash of JP¥369.6b. Despite its cash we think that GMO internet group seems to struggle to handle its total liabilities, so we are wary of the stock. Over time, share prices tend to follow earnings per share, so if you're interested in GMO internet group, you may well want to click here to check an interactive graph of its earnings per share history.

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.