Is HT Media (NSE:HTMEDIA) Using Debt In A Risky Way?

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 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 HT Media Limited (NSE:HTMEDIA) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 HT Media

What Is HT Media's Debt?

You can click the graphic below for the historical numbers, but it shows that HT Media had ₹5.67b of debt in March 2021, down from ₹7.67b, one year before. But it also has ₹5.87b in cash to offset that, meaning it has ₹199.8m net cash.

A Look At HT Media's Liabilities

According to the last reported balance sheet, HT Media had liabilities of ₹16.3b due within 12 months, and liabilities of ₹2.07b due beyond 12 months. On the other hand, it had cash of ₹5.87b and ₹2.68b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by ₹9.78b.

The deficiency here weighs heavily on the ₹6.30b company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we'd watch its balance sheet closely, without a doubt. After all, HT Media would likely require a major re-capitalisation if it had to pay its creditors today. HT Media boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if HT Media can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year HT Media had a loss before interest and tax, and actually shrunk its revenue by 33%, to ₹12b. That makes us nervous, to say the least.

So How Risky Is HT Media?

Although HT Media had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of ₹1.8b. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. We're not impressed by its revenue growth, so until we see some positive sustainable EBIT, we consider the stock to be high risk. 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. Be aware that HT Media is showing 3 warning signs in our investment analysis , and 1 of those is concerning...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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