Is Glacier Media (TSE:GVC) Using Too Much Debt?

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.' 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. As with many other companies Glacier Media Inc. (TSE:GVC) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Glacier Media

What Is Glacier Media's Debt?

You can click the graphic below for the historical numbers, but it shows that Glacier Media had CA$2.52m of debt in June 2021, down from CA$26.5m, one year before. But on the other hand it also has CA$14.5m in cash, leading to a CA$12.0m net cash position.

A Look At Glacier Media's Liabilities

The latest balance sheet data shows that Glacier Media had liabilities of CA$44.8m due within a year, and liabilities of CA$19.2m falling due after that. Offsetting this, it had CA$14.5m in cash and CA$38.0m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by CA$11.5m.

Given Glacier Media has a market capitalization of CA$60.4m, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Glacier Media boasts net cash, so it's fair to say it does not have a heavy debt load!

Although Glacier Media made a loss at the EBIT level, last year, it was also good to see that it generated CA$12m in EBIT over the last twelve months. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Glacier Media's earnings that will influence how the balance sheet holds up in the future. 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.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Glacier Media may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Glacier Media actually produced more free cash flow than EBIT over the last year. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing up

While Glacier Media does have more liabilities than liquid assets, it also has net cash of CA$12.0m. The cherry on top was that in converted 181% of that EBIT to free cash flow, bringing in CA$21m. So is Glacier Media's debt a risk? It doesn't seem so to us. 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 3 warning signs for Glacier Media that you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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.

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