Before you start:
If you can’t see the tweet;
I examined the Big 4 balance sheet for the year 2023 and look what I found out. Highest liquidity: (Current assets / Current Liabilities) Layman: Do I have enough money to pay my bills? (Higher is better)
2) JYP: 2.39 (rich!)
4) HYBE: 1.07 (Just getting by)
Most leveraged: (Total Liabilities / Total Equity) Layman: How much of my money is borrowed? (Lower is safer)
1) YG: 27% (good debt management, low leverage)
2) JYP: 44% (manageable)
3) SM: 69% (because k-pop is volatile, this might be risky, especially when a few projects underperform)
4) HYBE: 72% (same as SM)
Most financially stable long-term (Equity ratio): (Total Equity / Total Assets) Layman: How much of my stuff do I really own? (Higher is better)
1) YG: 79%
2) JYP: 70%
3) SM: 59% (higher reliance on debt financing)
4) HYBE: 58% (higher reliance on debt financing)
Most dependent on brand reputation (Goodwill to Total Asset Ratio): (Net Goodwill / Total Assets) Layman: How much of my stuff’s value is because it’s cool or popular? (Lower is less risky)
Example: Imagine Company A buys Company B. Company B has physical assets worth $5 million, but Company A agrees to pay $8 million for it. The extra $3 million is because Company B has a strong brand and loyal customers. That $3 million is recorded as goodwill on Company A’s balance sheet.
If, over time, Company A decides that the brand isn’t as valuable as it originally thought, it might write down (reduce) the goodwill to $2 million. This $2 million is the net goodwill. A growing net goodwill balance without corresponding increases in actual performance or cash flows from the acquisitions can be a red flag. It might suggest that the company is accumulating goodwill based on overly optimistic assumptions or overpaying for acquisitions.
1) YG: 0.63%
2) JYP: 5.26%
3) SM: 9.70%
4) HYBE: 32.13% (staggering!)
Note that goodwill is an intangible asset and represents a residual value (or overpayment) that only arises during an acquisition. It only increases when a company acquires an additional asset. If the acquired asset performs well, the recorded goodwill will remain unchanged.
However, if the acquired asset performs poorly, the goodwill will decrease according to an impairment value. Unlike intellectual property (IP), goodwill doesn't generate income and cannot be sold. Its primary purpose is to provide completeness to the balance sheet and indicate how much a company "invested" in acquiring an asset.
So yes, Hybe may be the biggest, but that’s about all it has going for it. It’s a very risky stock to own. With $1.3B tied up in "goodwill" that it can never recover, it’s understandable why the company might be manipulating the media to protect its already damaged reputation.
Overall, if we’re talking about financial savvyness, the ranking is as follows:
1) YG
2) JYP
3) SM
4) HYBE
