Why a Company with '5 Trillion Yen in Profits' Is Actually Not Valued by the Market—A Small Business Owner Deciphers SoftBank Group's Financial Structure
When you are engaged in overseas sales, have you ever encountered a situation like this?
“The product quality and price are fine. But for some reason, the buyer has stopped replying.”
In many cases, the cause is not the product itself, but the company's impression.
What I notice when talking to our clients is that when negotiations with overseas buyers stall in the early stages, financial 'opacity' is often a contributing factor.
In this article, I will use SoftBank Group's financial structure as an entry point to organize the perspective of 'the financial impression a company makes on an overseas buyer.'
Why a company with '5 trillion yen in profits' is not valued by the market
A while ago, a manufacturing business owner asked me this question:
“SoftBank Group reports amazing numbers every year, but their stock price remains sluggish. What is going on there?”
It is true that the net profit for the 2023 fiscal year was a surplus of approximately 940 billion yen (SoftBank Group's fiscal year ending March 2024 financial results), and the following period was even reported as having 'over 5 trillion yen in profits.' Yet, the market capitalization continues to trade at a significant discount compared to the total value of its assets.
Unraveling this 'why?' reveals a perspective that can be directly applied to the front lines of overseas sales.
In reality, the core of SoftBank Group is a massive investment holding company. The income statement reflects fluctuations in the market value of the shares it holds. If the stock prices of Alibaba or ARM rise, 'profit' is recorded; if they fall, it becomes a 'loss.' This is because IFRS (International Financial Reporting Standards) allows for accounting treatment that includes 'changes in the fair value of investments' in profit and loss.
In other words, a large portion of the '5 trillion yen profit' is often unrealized gains on stocks that have not yet been sold, meaning there are cases where the actual cash on hand has hardly increased.
Furthermore, the consolidated interest-bearing debt balance is over 18 trillion yen (according to the company's securities report). Even if assets are large, liabilities are also large, and the structure is complex, making it difficult to grasp the overall picture from the outside.
This is why the market applies a 'discount.'
The certainty that profits will actually be realized as cash is low
The financial structure is complex and difficult to understand from the outside
Decision-making is concentrated in a specific individual
This is called an NAV discount (holding company discount). There was a period when SoftBank Group's discount rate remained at around 30-50% for many years (according to the company's disclosure materials).
Although the scale is completely different, this structure works the same way in overseas transactions for small and medium-sized enterprises.
Three financial impressions that make overseas buyers feel they 'do not want to do business' with you
Impression 1: 'This company seems to be making a profit, but they don't seem to have any money'
We have a client, a food processing manufacturer, that was in negotiations with a buyer in Southeast Asia. The evaluation of their product samples was positive. However, when the buyer requested, 'We would like you to shorten the payment terms a little,' the company replied that it would be difficult to accommodate, and the enthusiasm for the negotiations cooled instantly.
We later learned that the buyer had felt, 'This company might not have any cash to spare.'
The profit on an income statement and the cash actually on hand are two different things. If accounts receivable are piling up or the collection cycle (the number of days until sales are received as cash) is long, cash flow will be tight even if the company is profitable. In terms of meaning, this is the same as SoftBank Group's structure of 'large unrealized gains but limited cash.'
Overseas buyers, especially wholesalers in Asia, negotiate while imagining the cash position of their trading partners.
Impression 2: 'The company's structure is hard to understand'
I often encounter this situation when talking to people at Japanese companies. There are multiple parent companies, subsidiaries, and affiliates, and it is difficult for outsiders to tell where the actual decision-making authority lies.
In Japan, things often proceed on the assumption that 'those involved already know,' but overseas buyers do not share that assumption. If you make them feel, 'The structure of this company is a bit hard to understand,' in your company profile or initial correspondence, that alone can make them wary.
The principle is the same as why one of the reasons for SoftBank Group's NAV discount was its 'complex financial structure that is difficult to see as a whole from the outside.' A structure that is difficult to understand lowers your valuation just by itself.
Impression 3: 'If the person in charge changes, the story might change'
We had a client who was negotiating a long-term contract with a potential distributor in the Middle East. As the negotiations progressed, the buyer repeatedly asked, 'Will these terms be maintained even if the person in charge changes?'
It is well known that Japanese companies have frequent personnel transfers. From the perspective of an overseas buyer, a 'company that depends on the president or an individual in charge' is seen as a risk to continuous business.
The evaluation axis called 'management risk' for SoftBank Group—the structure where Masayoshi Son's personal judgment dictates the entire company—is a topic that directly applies to small and medium-sized enterprises as well. The impression that 'the level of service remains stable even if the person in charge changes' is important for building long-term business relationships.
'Financial transparency' can be a weapon in overseas sales
When we organize things this far, we can see that what overseas buyers are judging at the initial stage is not just the quality of the product.
Does the company seem to have cash to spare?
Is the company's structure easy to understand?
Is the service stable even if the person in charge changes?
These three points are more a matter of 'company readability' than financial literacy.
Please review your company's profile and initial emails from the perspective of 'how will this be read when an overseas buyer sees it for the first time?'
Is it clear who the person in charge with decision-making authority is?
When multiple affiliates are involved, can their relationship be explained in a single line?
Regarding payments, delivery times, and contract terms, are there company-wide standards rather than reliance on individual staff members?
This is a preparatory stage for overseas sales, and it is a perspective that is surprisingly often overlooked.
While there are companies that are not valued by the market despite large numbers, there are also companies that are definitely valued even if their scale is small. The difference comes down to the 'quality of profit' and 'structural transparency.' I believe this is what the SoftBank Group case teaches us, regardless of scale.
If you are having trouble creating initial contact with overseas buyers or presenting company materials before business negotiations, please feel free to leave a comment.
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