Glacier Media (TSE:GVC) Has Debt But No Earnings; Should You Worry?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Glacier Media Inc. (TSE:GVC) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

View our latest analysis for Glacier Media

How Much Debt Does Glacier Media Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2022 Glacier Media had CA$7.74m of debt, an increase on CA$4.63m, over one year. But it also has CA$24.9m in cash to offset that, meaning it has CA$17.2m net cash.

A Look At Glacier Media's Liabilities

We can see from the most recent balance sheet that Glacier Media had liabilities of CA$47.7m falling due within a year, and liabilities of CA$28.1m due beyond that. Offsetting this, it had CA$24.9m in cash and CA$33.9m in receivables that were due within 12 months. So it has liabilities totalling CA$17.1m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Glacier Media is worth CA$42.8m, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Glacier Media boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Glacier Media will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Glacier Media wasn't profitable at an EBIT level, but managed to grow its revenue by 9.0%, to CA$177m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Glacier Media?

While Glacier Media lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow CA$3.2m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Until we see some positive EBIT, we're a bit cautious of the stock, not least because of the rather modest revenue growth. 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 instance, we've identified 2 warning signs for Glacier Media (1 can't be ignored) you should be aware of.

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.