Does Zee Learn (NSE:ZEELEARN) Have A Healthy Balance Sheet?

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. Importantly, Zee Learn Limited (NSE:ZEELEARN) does carry debt. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Zee Learn

What Is Zee Learn's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Zee Learn had ₹3.00b of debt in March 2021, down from ₹3.69b, one year before. However, it also had ₹409.8m in cash, and so its net debt is ₹2.59b.

How Healthy Is Zee Learn's Balance Sheet?

We can see from the most recent balance sheet that Zee Learn had liabilities of ₹3.77b falling due within a year, and liabilities of ₹4.81b due beyond that. Offsetting these obligations, it had cash of ₹409.8m as well as receivables valued at ₹1.46b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹6.71b.

When you consider that this deficiency exceeds the company's ₹4.48b market capitalization, you might well be inclined to review the balance sheet intently. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Zee Learn 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 Zee Learn had a loss before interest and tax, and actually shrunk its revenue by 50%, to ₹2.6b. To be frank that doesn't bode well.

Caveat Emptor

While Zee Learn's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at ₹69m. Considering that alongside the liabilities mentioned above make us nervous about the company. We'd want to see some strong near-term improvements before getting too interested in the stock. For example, we would not want to see a repeat of last year's loss of ₹88m. And until that time we think this is a risky stock. 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. To that end, you should learn about the 4 warning signs we've spotted with Zee Learn (including 2 which can't be ignored) .

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.
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