Sun TV Network (NSE:SUNTV) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We note that Sun TV Network Limited (NSE:SUNTV) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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, 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 Sun TV Network

What Is Sun TV Network's Net Debt?

As you can see below, at the end of March 2022, Sun TV Network had ₹948.8m of debt, up from none a year ago. Click the image for more detail. But on the other hand it also has ₹35.5b in cash, leading to a ₹34.5b net cash position.

A Look At Sun TV Network's Liabilities

According to the last reported balance sheet, Sun TV Network had liabilities of ₹6.65b due within 12 months, and liabilities of ₹725.1m due beyond 12 months. Offsetting this, it had ₹35.5b in cash and ₹14.3b in receivables that were due within 12 months. So it actually has ₹42.5b more liquid assets than total liabilities.

It's good to see that Sun TV Network has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Because it has plenty of assets, it is unlikely to have trouble with its lenders. Simply put, the fact that Sun TV Network has more cash than debt is arguably a good indication that it can manage its debt safely.

And we also note warmly that Sun TV Network grew its EBIT by 13% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Sun TV Network 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Sun TV Network has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Sun TV Network's free cash flow amounted to 48% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Sun TV Network has ₹34.5b in net cash and a decent-looking balance sheet. On top of that, it increased its EBIT by 13% in the last twelve months. So we don't think Sun TV Network's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - Sun TV Network has 1 warning sign we think you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.