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

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 HT Media Limited (NSE:HTMEDIA) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for HT Media

How Much Debt Does HT Media Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 HT Media had ₹8.36b of debt, an increase on ₹4.82b, over one year. But it also has ₹11.6b in cash to offset that, meaning it has ₹3.28b net cash.

How Healthy Is HT Media's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that HT Media had liabilities of ₹17.2b due within 12 months and liabilities of ₹1.65b due beyond that. On the other hand, it had cash of ₹11.6b and ₹3.02b worth of receivables due within a year. So it has liabilities totalling ₹4.17b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of ₹6.13b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, HT Media 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 it is HT Media'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 HT Media had a loss before interest and tax, and actually shrunk its revenue by 12%, to ₹13b. We would much prefer see growth.

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 ₹535m. 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. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example HT Media has 2 warning signs (and 1 which is significant) 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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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.