Would Zee Media (NSE:ZEEMEDIA) Be Better Off With Less Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. Importantly, Zee Media Corporation Limited (NSE:ZEEMEDIA) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

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. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Zee Media

What Is Zee Media's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Zee Media had ₹1.78b of debt in September 2023, down from ₹2.34b, one year before. However, it does have ₹145.5m in cash offsetting this, leading to net debt of about ₹1.64b.

How Strong Is Zee Media's Balance Sheet?

The latest balance sheet data shows that Zee Media had liabilities of ₹4.74b due within a year, and liabilities of ₹1.23b falling due after that. Offsetting these obligations, it had cash of ₹145.5m as well as receivables valued at ₹1.82b due within 12 months. So it has liabilities totalling ₹4.00b more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Zee Media has a market capitalization of ₹9.44b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Zee Media'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.

In the last year Zee Media had a loss before interest and tax, and actually shrunk its revenue by 31%, to ₹6.1b. To be frank that doesn't bode well.

Caveat Emptor

While Zee Media's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping ₹1.2b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of ₹1.2b into a profit. In the meantime, we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Zee Media that you should be aware of before investing here.

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.