Is Naspers (JSE:NPN) Using Too Much Debt?

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. We can see that Naspers Limited (JSE:NPN) does use debt in its business. But the real question is whether this debt is making the company risky.

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Naspers

How Much Debt Does Naspers Carry?

As you can see below, at the end of September 2024, Naspers had US$16.7b of debt, up from US$16.0b a year ago. Click the image for more detail. However, it does have US$18.4b in cash offsetting this, leading to net cash of US$1.73b.

How Healthy Is Naspers' Balance Sheet?

The latest balance sheet data shows that Naspers had liabilities of US$5.35b due within a year, and liabilities of US$16.3b falling due after that. On the other hand, it had cash of US$18.4b and US$2.07b worth of receivables due within a year. So it has liabilities totalling US$1.20b more than its cash and near-term receivables, combined.

Of course, Naspers has a titanic market capitalization of US$37.1b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, Naspers boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Naspers can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

In the last year Naspers wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to US$6.9b. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Naspers?

Although Naspers had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of US$3.5b. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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 example - Naspers has 2 warning signs we think you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.