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

By
Simply Wall St
Published
January 14, 2022
NSEI:ZEELEARN
Source: Shutterstock

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Zee Learn Limited (NSE:ZEELEARN) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. When we examine debt levels, we first consider both cash and debt levels, together.

Check out 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 as of September 2021 Zee Learn had ₹3.97b of debt, an increase on ₹3.00b, over one year. However, it does have ₹544.2m in cash offsetting this, leading to net debt of about ₹3.43b.

debt-equity-history-analysis
NSEI:ZEELEARN Debt to Equity History January 14th 2022

How Healthy Is Zee Learn's Balance Sheet?

We can see from the most recent balance sheet that Zee Learn had liabilities of ₹4.02b falling due within a year, and liabilities of ₹4.47b due beyond that. Offsetting these obligations, it had cash of ₹544.2m as well as receivables valued at ₹1.18b due within 12 months. So it has liabilities totalling ₹6.77b more than its cash and near-term receivables, combined.

When you consider that this deficiency exceeds the company's ₹5.48b market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Zee Learn'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.

Over 12 months, Zee Learn made a loss at the EBIT level, and saw its revenue drop to ₹2.2b, which is a fall of 43%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Zee Learn's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at ₹64m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. It's fair to say the loss of ₹130m didn't encourage us either; we'd like to see a profit. In the meantime, we consider the stock to be risky. 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 example, we've discovered 4 warning signs for Zee Learn (2 are concerning!) that you should be aware of before investing here.

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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.