Is Entertainment Network (India) (NSE:ENIL) A Risky Investment?

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. As with many other companies Entertainment Network (India) Limited (NSE:ENIL) makes use of debt. But the more important question is: how much risk is that debt creating?

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. If things get really bad, the lenders can take control of the business. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Entertainment Network (India)

What Is Entertainment Network (India)'s Debt?

The image below, which you can click on for greater detail, shows that at September 2021 Entertainment Network (India) had debt of ₹2.43b, up from ₹2.19b in one year. However, because it has a cash reserve of ₹2.21b, its net debt is less, at about ₹227.6m.

A Look At Entertainment Network (India)'s Liabilities

According to the last reported balance sheet, Entertainment Network (India) had liabilities of ₹1.17b due within 12 months, and liabilities of ₹2.18b due beyond 12 months. On the other hand, it had cash of ₹2.21b and ₹865.6m worth of receivables due within a year. So its liabilities total ₹272.3m more than the combination of its cash and short-term receivables.

Given Entertainment Network (India) has a market capitalization of ₹9.02b, it's hard to believe these liabilities pose much threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Entertainment Network (India) can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Entertainment Network (India) saw its revenue hold pretty steady, and it did not report positive earnings before interest and tax. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, Entertainment Network (India) had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹364m. 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. For example, we would not want to see a repeat of last year's loss of ₹968m. So we do think this stock is quite risky. 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 Entertainment Network (India) is showing 1 warning sign in our investment analysis , you should know about...

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.