Does HT Media (NSE:HTMEDIA) Have A Healthy Balance Sheet?

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.' 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 HT Media Limited (NSE:HTMEDIA) does have debt on its balance sheet. But is this debt a concern to shareholders?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for HT Media

What Is HT Media's Debt?

The image below, which you can click on for greater detail, shows that HT Media had debt of ₹7.07b at the end of March 2023, a reduction from ₹8.04b over a year. However, it does have ₹7.69b in cash offsetting this, leading to net cash of ₹617.3m.

A Look At HT Media's Liabilities

Zooming in on the latest balance sheet data, we can see that HT Media had liabilities of ₹17.6b due within 12 months and liabilities of ₹2.41b due beyond that. Offsetting this, it had ₹7.69b in cash and ₹3.58b in receivables that were due within 12 months. So its liabilities total ₹8.71b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the ₹5.23b company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. After all, HT Media would likely require a major re-capitalisation if it had to pay its creditors today. Given that HT Media has more cash than debt, we're pretty confident it can handle its debt, despite the fact that it has a lot of liabilities in total. The balance sheet is clearly the area to focus on when you are analysing debt. But it is HT Media'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.

In the last year HT Media wasn't profitable at an EBIT level, but managed to grow its revenue by 14%, to ₹17b. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is HT Media?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months HT Media lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of ₹740m and booked a ₹2.3b accounting loss. With only ₹617.3m on the balance sheet, it would appear that its going to need to raise capital again soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. 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 2 warning signs with HT Media (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.