Is Hindustan Media Ventures (NSE:HMVL) Using Debt In A Risky Way?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies Hindustan Media Ventures Limited (NSE:HMVL) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. 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.

See our latest analysis for Hindustan Media Ventures

How Much Debt Does Hindustan Media Ventures Carry?

As you can see below, Hindustan Media Ventures had ₹550.9m of debt, at March 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have ₹8.46b in cash offsetting this, leading to net cash of ₹7.91b.

How Healthy Is Hindustan Media Ventures' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hindustan Media Ventures had liabilities of ₹7.37b due within 12 months and liabilities of ₹320.8m due beyond that. On the other hand, it had cash of ₹8.46b and ₹1.28b worth of receivables due within a year. So it actually has ₹2.06b more liquid assets than total liabilities.

It's good to see that Hindustan Media Ventures has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Given it has easily adequate short term liquidity, we don't think it will have any issues with its lenders. Succinctly put, Hindustan Media Ventures boasts net cash, so it's fair to say it does not have a heavy debt load! 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 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, Hindustan Media Ventures 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.

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 ₹100m. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Hindustan Media Ventures (1 is a bit 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.

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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.