NTT docomo and Softbank are the most powerful communication company in Japan.
Huge giant, NTT docomo always runs as a top communication company in Japan.
On the other hand, Softbank has grown with attractive leaders and bold strategies.
Mr. Son Masayoshi is now perceived as great entrepreneur around the world.
Recently, Mr. Son has launched an investment company which called SoftBank Group Corp. and is actively investing in unicorn companies around the world.
Mr. Miyauchi Ken is now running SoftBank Corporation.
Please note that the SoftBank Group Corp. and SoftBank Corp. are different companies.
Today, I introduce you financial comparison between NTT docomo & SoftBank Corporation(not SoftBank Group Corp.).
But both financial results are highly different.
Especially, balance sheets were interesting for me.
BS: Balance Sheet
What is BS(Balance Sheet)?
Balance Sheet is a sheet which has
“ASSETS” on left side,
“Liabilities and shareholder’s equities” on right side.
The feature is that the left and right total values are always the same.
BS between NTT docomo & SoftBank Corp.
NTT docomo has assets over 7.0 trillion yen.
I think that NTT docomo was extremely good from a financial standpoint in FY2018.
The short-term and long-term stability is particularly good.
On the other hand, SoftBank corp. has assets over 5.0 trillion yen.
But SoftBank’s equity ration is higher than NTT docomo’s one.
Let’s take a closer look.
What is Current ratio?
The current ratio is one of the indicators of short-term safety of company.
The larger the current ratio, the higher the short-term safety because it is difficult for the funds to short.
Current ratio(%)=Current Assets÷Current Liabilities×100
*calculated from BS.
Current ratio between NTT docomo & SoftBank Corp.
NTT docomo’s current ratio was approximately 180%.
It’s particularly stable for short-term.
On the other hand, SoftBank’s current ratio is lower than 100%.
What is Equity ratio?
Equity ratio is one of the indicators of the long-term safety of a company.
The higher the equity ratio, the higher the long-term safety.
Equity ratio(%)=Shareholder’s equities ÷ total assets × 100
*calculated from BS.
Equity ratio between NTT docomo & SoftBank Corp.
NTT docomo’s equity ratio is over 70%.
Also, It’s particularly stable for long-term.
On the other hand, Softbank’s equity ratio is approximately 20%, lower than 30%(a guide).
It is a huge difference between both.
This graph shows that SoftBank has higher liabilities than NTT docomo.
Liabilities are not good impression because they is needed to pay back for creditors.
But liabilities are not bad for company management.
If you try to manage with just your own money, you will not be able to make a bold investment.
Modern management needs speed.
Therefore, they borrowed money from banks and other sources to rapidly expand the scale of their business.
SoftBank has made a entry into the mobile communications industry with the acquisition of Vodafone Japan in 2001.
It is a latecomer compared to NTT Docomo in communication industry.
At that time, there was an overwhelming difference between NTT docomo & Softbank in the number of subscribers, so Softbank could not catch up at a moderate speed.
Moreover, the penetration rate of mobile phones had accelerated in 2001, so they had decided to borrow a lot of money from banks and more.
communication industry is typical subscription bussiness.
Financial leverage ratio
What is financial leverage ratio?
financial leverage ratio is a index of liabilities utilization.
Like the lever principle, it means that a small force (Equities) moves a large one (Liabilities).
It can be said that the higher the financial leverage ratio, the more aggressively the debt-based management of the company.
The average value of financial leverage ratio is approximately 300%.
Financial leverage ratio(%)= Total assets ÷ Shareholder’s equities× 100
*calculated from BS.
**Reciprocal of Equity ratio.
Financial leverage ratio between NTT docomo & SoftBank Corp.
From this graph, Financial leverage ratio of SoftBank is over 450%.
It means highly aggressive company management.
However, it is also true that it increases the risk of long-term stability of the company.
Here, I think about another merit of liabilities utilization.
It’s reduction for the fundraising cost.
There are two ways to raise fund.
One is from increasing equities.
Second is from increasing liabilities.
In general, debt raising cost is lower than equity raising cost.
Depending on the type of industry and company, equity raising cost is 4-6%, debt raising cost is 1-2%.
In addition, there is a tax-saving effect on raising debt.
・NTT docomo, Securities report submitted : Jun. 21 2019
・SoftBank Corp., Securities report submitted : Jun. 26 2019