Raj Television Network (NSE:RAJTV) Is Making Moderate Use Of Debt

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. As with many other companies Raj Television Network Limited (NSE:RAJTV) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for Raj Television Network

What Is Raj Television Network's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of September 2024 Raj Television Network had ₹328.3m of debt, an increase on ₹242.7m, over one year. Net debt is about the same, since the it doesn't have much cash.

How Healthy Is Raj Television Network's Balance Sheet?

The latest balance sheet data shows that Raj Television Network had liabilities of ₹345.5m due within a year, and liabilities of ₹246.3m falling due after that. Offsetting these obligations, it had cash of ₹3.30m as well as receivables valued at ₹371.6m due within 12 months. So it has liabilities totalling ₹216.9m more than its cash and near-term receivables, combined.

Of course, Raj Television Network has a market capitalization of ₹4.38b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Raj Television Network'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.

Over 12 months, Raj Television Network made a loss at the EBIT level, and saw its revenue drop to ₹1.2b, which is a fall of 6.6%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Raj Television Network produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at ₹147m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through ₹90m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Raj Television Network (of which 1 is potentially serious!) you should know about.

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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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.