Is HT Media (NSE:HTMEDIA) Using Debt Sensibly?

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.' 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. We can see that HT Media Limited (NSE:HTMEDIA) does use debt in its business. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

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. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for HT Media

How Much Debt Does HT Media Carry?

The image below, which you can click on for greater detail, shows that at March 2022 HT Media had debt of ₹8.03b, up from ₹7.34b in one year. But on the other hand it also has ₹11.4b in cash, leading to a ₹3.38b net cash position.

How Strong Is HT Media's Balance Sheet?

We can see from the most recent balance sheet that HT Media had liabilities of ₹16.2b falling due within a year, and liabilities of ₹2.75b due beyond that. Offsetting these obligations, it had cash of ₹11.4b as well as receivables valued at ₹3.49b due within 12 months. So its liabilities total ₹4.06b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of ₹5.00b, so it does suggest shareholders should keep an eye on HT Media's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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 you can't view debt in total isolation; since HT Media will need earnings to service that debt. 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 34%, to ₹15b. Shareholders probably have their fingers crossed that it can grow its way to profits.

So How Risky Is HT Media?

Although HT Media had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of ₹178m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. The good news for HT Media shareholders is that its revenue growth is strong, making it easier to raise capital if need be. But that doesn't change our opinion that the stock is risky. 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 instance, we've identified 3 warning signs for HT Media (1 doesn't sit too well with us) you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.