Here's Why KDDI (TSE:9433) Can Manage Its Debt Responsibly
KDDI Corporation (TSE:9433) has significant debt, totaling JP¥4.59 trillion, with net debt around JP¥3.59 trillion after accounting for cash reserves. Despite high liabilities, its net debt to EBITDA ratio of 2.0 and strong interest cover of 34.6 indicate manageable debt levels. KDDI's free cash flow covers 75% of its EBIT, allowing for debt reduction. While the company can handle its debt comfortably, its total liabilities raise concerns about potential shareholder dilution. Analysts suggest monitoring KDDI for risks beyond the balance sheet, noting two significant warning signs.
David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. Importantly, KDDI Corporation (TSE:9433) does carry debt. But should shareholders be worried about its use of debt?
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When Is Debt A Problem?
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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
What Is KDDI's Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2025 KDDI had JP¥4.59t of debt, an increase on JP¥2.99t, over one year. On the flip side, it has JP¥993.9b in cash leading to net debt of about JP¥3.59t.
How Strong Is KDDI's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that KDDI had liabilities of JP¥8.68t due within 12 months and liabilities of JP¥3.26t due beyond that. On the other hand, it had cash of JP¥993.9b and JP¥3.72t worth of receivables due within a year. So it has liabilities totalling JP¥7.23t more than its cash and near-term receivables, combined.
This is a mountain of leverage even relative to its gargantuan market capitalization of JP¥9.02t. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry.
See our latest analysis for KDDI
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.
KDDI's net debt to EBITDA ratio of about 2.0 suggests only moderate use of debt. And its strong interest cover of 34.6 times, makes us even more comfortable. If KDDI can keep growing EBIT at last year's rate of 15% over the last year, then it will find its debt load easier to manage. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine KDDI's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. Over the most recent three years, KDDI recorded free cash flow worth 75% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.
Our View
KDDI's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. But truth be told we feel its level of total liabilities does undermine this impression a bit. Looking at all the aforementioned factors together, it strikes us that KDDI can handle its debt fairly comfortably. Of course, while this leverage can enhance returns on equity, it does bring more risk, so it's worth keeping an eye on this one. 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 KDDI (of which 1 is significant!) 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.
