Is Hindustan Media Ventures (NSE:HMVL) Weighed On By Its Debt Load?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. Importantly, Hindustan Media Ventures Limited (NSE:HMVL) does carry debt. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt 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 ₹719.7m of debt at September 2020, down from ₹902.9m a year prior. However, its balance sheet shows it holds ₹3.55b in cash, so it actually has ₹2.83b net cash.

How Strong Is Hindustan Media Ventures' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Hindustan Media Ventures had liabilities of ₹3.14b due within 12 months and liabilities of ₹658.8m due beyond that. Offsetting these obligations, it had cash of ₹3.55b as well as receivables valued at ₹1.43b due within 12 months. So it actually has ₹1.19b 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. 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 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.

In the last year Hindustan Media Ventures had a loss before interest and tax, and actually shrunk its revenue by 33%, to ₹5.6b. To be frank that doesn't bode well.

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 ₹743m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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. For example Hindustan Media Ventures has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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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