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

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. We can see that Hindustan Media Ventures Limited (NSE:HMVL) does use debt in its business. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 Net Debt?

The image below, which you can click on for greater detail, shows that Hindustan Media Ventures had debt of ₹1.07b at the end of March 2023, a reduction from ₹1.20b over a year. However, its balance sheet shows it holds ₹5.62b in cash, so it actually has ₹4.56b net cash.

A Look At Hindustan Media Ventures' Liabilities

According to the last reported balance sheet, Hindustan Media Ventures had liabilities of ₹6.67b due within 12 months, and liabilities of ₹434.5m due beyond 12 months. Offsetting these obligations, it had cash of ₹5.62b as well as receivables valued at ₹1.18b due within 12 months. So its liabilities total ₹297.0m more than the combination of its cash and short-term receivables.

Since publicly traded Hindustan Media Ventures shares are worth a total of ₹4.55b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. While it does have liabilities worth noting, Hindustan Media Ventures also has more cash than debt, so we're pretty confident it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. 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.

In the last year Hindustan Media Ventures's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

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 generated positive free cash flow of ₹382m. So although it is loss-making, it doesn't seem to have too much near-term balance sheet risk, keeping in mind the net cash. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. 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. For instance, we've identified 2 warning signs for Hindustan Media Ventures (1 is a bit concerning) you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.