We Think Sambhaav Media (NSE:SAMBHAAV) Has A Fair Chunk Of Debt

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 Sambhaav Media Limited (NSE:SAMBHAAV) does use debt in its business. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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.

Check out our latest analysis for Sambhaav Media

What Is Sambhaav Media's Debt?

As you can see below, Sambhaav Media had ₹150.0m of debt at March 2022, down from ₹209.2m a year prior. However, it also had ₹10.0m in cash, and so its net debt is ₹140.0m.

How Healthy Is Sambhaav Media's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sambhaav Media had liabilities of ₹140.3m due within 12 months and liabilities of ₹73.9m due beyond that. On the other hand, it had cash of ₹10.0m and ₹269.0m worth of receivables due within a year. So it actually has ₹64.8m more liquid assets than total liabilities.

This surplus suggests that Sambhaav Media has a conservative balance sheet, and could probably eliminate its debt without much difficulty. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Sambhaav 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.

Over 12 months, Sambhaav Media made a loss at the EBIT level, and saw its revenue drop to ₹447m, which is a fall of 2.9%. We would much prefer see growth.

Caveat Emptor

Importantly, Sambhaav Media had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at ₹7.6m. Looking on the brighter side, the business has adequate liquid assets, which give it time to grow and develop before its debt becomes a near-term issue. But we'd be more likely to spend time trying to understand the stock if the company made a profit. So it seems too risky for our taste. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with Sambhaav Media (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.

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.