Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Take-Two Interactive Software, Inc. (NASDAQ:TTWO) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Take-Two Interactive Software

What Is Take-Two Interactive Software's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Take-Two Interactive Software had debt of US$3.66b, up from US$3.08b in one year. On the flip side, it has US$1.21b in cash leading to net debt of about US$2.45b.

How Healthy Is Take-Two Interactive Software's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Take-Two Interactive Software had liabilities of US$2.90b due within 12 months and liabilities of US$4.08b due beyond that. Offsetting this, it had US$1.21b in cash and US$739.4m in receivables that were due within 12 months. So it has liabilities totalling US$5.03b more than its cash and near-term receivables, combined.

Since publicly traded Take-Two Interactive Software shares are worth a very impressive total of US$37.5b, 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. 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 Take-Two Interactive Software'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.

In the last year Take-Two Interactive Software's revenue was pretty flat, and it made a negative EBIT. While that's not too bad, we'd prefer see growth.

Caveat Emptor

Over the last twelve months Take-Two Interactive Software produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$552m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Another cause for caution is that is bled US$495m in negative free cash flow over the last twelve months. So to be blunt we think it is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 1 warning sign for Take-Two Interactive Software you should be aware of.

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.