Zee Entertainment Enterprises (NSE:ZEEL) Seems To Use Debt Rather Sparingly

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.' 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 can see that Zee Entertainment Enterprises Limited (NSE:ZEEL) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. 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. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Zee Entertainment Enterprises's Net Debt?

As you can see below, at the end of March 2025, Zee Entertainment Enterprises had ₹1.60b of debt, up from ₹55.0m a year ago. Click the image for more detail. However, it does have ₹24.1b in cash offsetting this, leading to net cash of ₹22.5b.

How Healthy Is Zee Entertainment Enterprises' Balance Sheet?

The latest balance sheet data shows that Zee Entertainment Enterprises had liabilities of ₹18.0b due within a year, and liabilities of ₹3.98b falling due after that. On the other hand, it had cash of ₹24.1b and ₹15.3b worth of receivables due within a year. So it actually has ₹17.4b more liquid assets than total liabilities.

It's good to see that Zee Entertainment Enterprises 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. Succinctly put, Zee Entertainment Enterprises boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Zee Entertainment Enterprises

In addition to that, we're happy to report that Zee Entertainment Enterprises has boosted its EBIT by 43%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Zee Entertainment Enterprises's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Zee Entertainment Enterprises 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. During the last three years, Zee Entertainment Enterprises produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to investigate a company's debt, in this case Zee Entertainment Enterprises has ₹22.5b in net cash and a decent-looking balance sheet. And we liked the look of last year's 43% year-on-year EBIT growth. So is Zee Entertainment Enterprises's debt a risk? It doesn't seem so to us. 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. We've identified 1 warning sign with Zee Entertainment Enterprises , 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.