Hindustan Media Ventures (NSE:HMVL) Has Debt But No Earnings; Should You Worry?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. Importantly, Hindustan Media Ventures Limited (NSE:HMVL) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Hindustan Media Ventures

What Is Hindustan Media Ventures's Debt?

As you can see below, at the end of September 2021, Hindustan Media Ventures had ₹1.40b of debt, up from ₹813.0m a year ago. Click the image for more detail. However, it does have ₹8.90b in cash offsetting this, leading to net cash of ₹7.50b.

A Look At Hindustan Media Ventures' Liabilities

We can see from the most recent balance sheet that Hindustan Media Ventures had liabilities of ₹5.26b falling due within a year, and liabilities of ₹356.5m due beyond that. Offsetting these obligations, it had cash of ₹8.90b as well as receivables valued at ₹1.36b due within 12 months. So it actually has ₹4.64b more liquid assets than total liabilities.

This surplus strongly suggests that Hindustan Media Ventures has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Hindustan Media Ventures boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. But it is Hindustan Media Ventures's earnings that will influence how the balance sheet holds up in the future. 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 reported revenue of ₹6.3b, which is a gain of 13%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

So How Risky Is Hindustan Media Ventures?

While Hindustan Media Ventures lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of ₹596m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. There's no doubt the next few years will be crucial to how the business matures. 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. Case in point: We've spotted 3 warning signs for Hindustan Media Ventures you should be aware of, and 1 of them 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.