Here's Why U-NEXT HOLDINGSLtd (TSE:9418) Can Manage Its Debt Responsibly

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 can see that U-NEXT HOLDINGS Co.,Ltd. (TSE:9418) does use debt in its business. But the real question is whether this debt is making the company risky.

We check all companies for important risks. See what we found for U-NEXT HOLDINGSLtd in our free report.

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. If things get really bad, the lenders can take control of the business. 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. 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 U-NEXT HOLDINGSLtd's Debt?

You can click the graphic below for the historical numbers, but it shows that as of February 2025 U-NEXT HOLDINGSLtd had JP¥70.4b of debt, an increase on JP¥62.5b, over one year. On the flip side, it has JP¥50.0b in cash leading to net debt of about JP¥20.4b.

A Look At U-NEXT HOLDINGSLtd's Liabilities

Zooming in on the latest balance sheet data, we can see that U-NEXT HOLDINGSLtd had liabilities of JP¥68.6b due within 12 months and liabilities of JP¥72.7b due beyond that. Offsetting these obligations, it had cash of JP¥50.0b as well as receivables valued at JP¥39.3b due within 12 months. So its liabilities total JP¥52.0b more than the combination of its cash and short-term receivables.

Since publicly traded U-NEXT HOLDINGSLtd shares are worth a total of JP¥367.4b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward.

See our latest analysis for U-NEXT HOLDINGSLtd

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

U-NEXT HOLDINGSLtd has a low net debt to EBITDA ratio of only 0.50. And its EBIT covers its interest expense a whopping 48.4 times over. So we're pretty relaxed about its super-conservative use of debt. Fortunately, U-NEXT HOLDINGSLtd grew its EBIT by 8.2% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine U-NEXT HOLDINGSLtd's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. So we always check how much of that EBIT is translated into free cash flow. Over the last three years, U-NEXT HOLDINGSLtd reported free cash flow worth 11% of its EBIT, which is really quite low. That limp level of cash conversion undermines its ability to manage and pay down debt.

Our View

Both U-NEXT HOLDINGSLtd's ability to to cover its interest expense with its EBIT and its net debt to EBITDA gave us comfort that it can handle its debt. Having said that, its conversion of EBIT to free cash flow somewhat sensitizes us to potential future risks to the balance sheet. Considering this range of data points, we think U-NEXT HOLDINGSLtd is in a good position to manage its debt levels. But a word of caution: we think debt levels are high enough to justify ongoing monitoring. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of U-NEXT HOLDINGSLtd's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.