Does Hindustan Media Ventures (NSE:HMVL) Have A Healthy Balance Sheet?

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. We note that Hindustan Media Ventures Limited (NSE:HMVL) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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 Hindustan Media Ventures

What Is Hindustan Media Ventures's Debt?

As you can see below, Hindustan Media Ventures had ₹1.09b of debt at September 2023, down from ₹2.78b a year prior. However, its balance sheet shows it holds ₹7.54b in cash, so it actually has ₹6.45b net cash.

How Strong Is Hindustan Media Ventures' Balance Sheet?

The latest balance sheet data shows that Hindustan Media Ventures had liabilities of ₹7.15b due within a year, and liabilities of ₹375.6m falling due after that. On the other hand, it had cash of ₹7.54b and ₹1.25b worth of receivables due within a year. So it can boast ₹1.27b more liquid assets than total liabilities.

This surplus suggests that Hindustan Media Ventures is using debt in a way that is appears to be both safe and conservative. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Hindustan Media Ventures has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Hindustan Media Ventures will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Hindustan Media Ventures made a loss at the EBIT level, and saw its revenue drop to ₹7.0b, which is a fall of 5.1%. That's not what we would hope to see.

So How Risky Is Hindustan Media Ventures?

Although Hindustan Media Ventures had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₹114m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Hindustan Media Ventures (at least 1 which is concerning) , and understanding them should be part of your investment process.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.