SoftBank (SFTBY) founder Masayoshi Son's tireless ambition to create a global technology empire has made headlines again this year, but his debt-fulled acquisition strategy, highlighted by a $30 billion takeover of ARM Holdings, has some investors worried about over-leverage.
Whether that concern is warranted should be revealed to some extent Monday as the Japanese group, still widely recognized as a wireless carrier in its home country, reveals its financial position alongside second quarter earnings.
A consensus of 17 analysts compiled by FactSet calls for net profit of ¥630.8 billion ($6.1 billion) on revenue of ¥2.16 trillion for the three months ended September 30. This compares with a net profit of ¥213 billion and revenue of ¥2.29 trillion booked in the same period last year.
A key figure would be the company's interest-bearing debt, which swelled to ¥12.37 trillion from ¥11.92 trillion during the three months to June 30. With the purchase of U.K.-based chip designer ARM, which SoftBank announced in July and completed early September for £24 billion ($30 billion), the debt level should rise even further, even though the deal was partially financed through the sale of stakes in Supercell, GungHo (GUNGF) , and Alibaba (BABA) .
It remains to be seen, however, whether the level is enough to raise eyebrows, as it has for Moody's Investors Service.
One way of gauging whether SoftBank is in troubled territory may be to check the level of debt to earnings.
Alongside first quarter results announced late July, SoftBank estimated that the ratio of its net debt/Ebitda ratio would stand at 4.4 times after the ARM purchase. That's lower than the 6.8 level recorded just after the company acquired the Japanese unit of Vodafone in 2006, but up from 3.8 times in March of this year.