Is Hindustan Media Ventures (NSE:HMVL) Weighed On By Its Debt Load?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Hindustan Media Ventures Limited (NSE:HMVL) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Hindustan Media Ventures

What Is Hindustan Media Ventures's Net Debt?

The image below, which you can click on for greater detail, shows that Hindustan Media Ventures had debt of ₹719.7m at the end of September 2020, a reduction from ₹902.9m over a year. However, it does have ₹3.55b in cash offsetting this, leading to net cash of ₹2.83b.

How Healthy Is Hindustan Media Ventures's Balance Sheet?

According to the last reported balance sheet, Hindustan Media Ventures had liabilities of ₹3.14b due within 12 months, and liabilities of ₹658.8m due beyond 12 months. Offsetting this, it had ₹3.55b in cash and ₹1.43b in receivables that were due within 12 months. So it actually has ₹1.19b more liquid assets than total liabilities.

This surplus liquidity suggests that Hindustan Media Ventures's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Hindustan Media Ventures boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Hindustan Media Ventures's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Hindustan Media Ventures had a loss before interest and tax, and actually shrunk its revenue by 28%, to ₹6.1b. That makes us nervous, to say the least.

So How Risky Is Hindustan Media Ventures?

Although Hindustan Media Ventures had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₹721m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Hindustan Media Ventures is showing 3 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

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. 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.
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