Here's Why Sports Entertainment Group (ASX:SEG) Can Manage Its Debt Responsibly

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. We note that Sports Entertainment Group Limited (ASX:SEG) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sports Entertainment Group's Debt?

You can click the graphic below for the historical numbers, but it shows that Sports Entertainment Group had AU$15.9m of debt in June 2025, down from AU$24.0m, one year before. But it also has AU$18.1m in cash to offset that, meaning it has AU$2.22m net cash.

A Look At Sports Entertainment Group's Liabilities

According to the last reported balance sheet, Sports Entertainment Group had liabilities of AU$29.7m due within 12 months, and liabilities of AU$44.2m due beyond 12 months. Offsetting these obligations, it had cash of AU$18.1m as well as receivables valued at AU$19.4m due within 12 months. So it has liabilities totalling AU$36.3m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Sports Entertainment Group has a market capitalization of AU$81.5m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Sports Entertainment Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Sports Entertainment Group

Pleasingly, Sports Entertainment Group is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 304% gain in the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Sports Entertainment Group will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Sports Entertainment Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Sports Entertainment Group actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

Although Sports Entertainment Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of AU$2.22m. And it impressed us with free cash flow of AU$4.7m, being 126% of its EBIT. So we are not troubled with Sports Entertainment Group's debt use. 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. For example, we've discovered 3 warning signs for Sports Entertainment Group (1 is a bit concerning!) that you should be aware of before investing here.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.