Konami Group (TSE:9766) Seems To Use Debt Rather Sparingly
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.' 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 Konami Group Corporation (TSE:9766) does use debt in its business. But should shareholders be worried about its use of debt?
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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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.
What Is Konami Group's Net Debt?
The image below, which you can click on for greater detail, shows that Konami Group had debt of JP¥39.9b at the end of September 2025, a reduction from JP¥59.9b over a year. But on the other hand it also has JP¥272.4b in cash, leading to a JP¥232.5b net cash position.
How Healthy Is Konami Group's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Konami Group had liabilities of JP¥99.3b due within 12 months and liabilities of JP¥66.6b due beyond that. Offsetting this, it had JP¥272.4b in cash and JP¥53.4b in receivables that were due within 12 months. So it can boast JP¥159.9b more liquid assets than total liabilities.
This surplus suggests that Konami Group has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Simply put, the fact that Konami Group has more cash than debt is arguably a good indication that it can manage its debt safely.
Check out our latest analysis for Konami Group
And we also note warmly that Konami Group grew its EBIT by 19% last year, making its debt load easier to handle. 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 Konami Group'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. Konami 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. During the last three years, Konami Group produced sturdy free cash flow equating to 50% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.
Summing Up
While it is always sensible to investigate a company's debt, in this case Konami Group has JP¥232.5b in net cash and a decent-looking balance sheet. And we liked the look of last year's 19% year-on-year EBIT growth. So is Konami Group's debt a risk? It doesn't seem so to us. 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. Case in point: We've spotted 1 warning sign for Konami Group 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.