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

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. Importantly, Everyman Media Group plc (LON:EMAN) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Everyman Media Group

What Is Everyman Media Group's Debt?

As you can see below, at the end of June 2023, Everyman Media Group had UK£23.0m of debt, up from UK£14.8m a year ago. Click the image for more detail. However, it does have UK£1.70m in cash offsetting this, leading to net debt of about UK£21.3m.

How Strong Is Everyman Media Group's Balance Sheet?

We can see from the most recent balance sheet that Everyman Media Group had liabilities of UK£23.4m falling due within a year, and liabilities of UK£114.7m due beyond that. Offsetting this, it had UK£1.70m in cash and UK£7.11m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by UK£129.2m.

The deficiency here weighs heavily on the UK£60.6m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. After all, Everyman Media Group would likely require a major re-capitalisation if it had to pay its creditors today. The balance sheet is clearly the area to focus on when you are analysing debt. 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're focused on the future you can check out this free report showing analyst profit forecasts.

Over 12 months, Everyman Media Group made a loss at the EBIT level, and saw its revenue drop to UK£76m, which is a fall of 6.8%. We would much prefer see growth.

Caveat Emptor

Importantly, Everyman Media Group had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at UK£2.2m. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through UK£15m in negative free cash flow over the last year. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that Everyman Media Group is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...

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. 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.