Is Everyman Media Group (LON:EMAN) Weighed On By Its Debt Load?

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 note that Everyman Media Group plc (LON:EMAN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Everyman Media Group

What Is Everyman Media Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Everyman Media Group had UK£12.6m of debt, an increase on UK£9.04m, over one year. However, because it has a cash reserve of UK£4.24m, its net debt is less, at about UK£8.38m.

A Look At Everyman Media Group's Liabilities

The latest balance sheet data shows that Everyman Media Group had liabilities of UK£19.1m due within a year, and liabilities of UK£92.8m falling due after that. On the other hand, it had cash of UK£4.24m and UK£5.65m worth of receivables due within a year. So its liabilities total UK£102.0m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of UK£106.7m, so it does suggest shareholders should keep an eye on Everyman Media Group's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Everyman Media Group's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Everyman Media Group wasn't profitable at an EBIT level, but managed to grow its revenue by 101%, to UK£49m. So there's no doubt that shareholders are cheering for growth

Caveat Emptor

While we can certainly appreciate Everyman Media Group's revenue growth, its earnings before interest and tax (EBIT) loss is not ideal. Indeed, it lost UK£8.5m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of UK£5.4m into a profit. So to be blunt we do think it is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that Everyman Media Group is showing 1 warning sign in our investment analysis , you should know about...

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.