Does Corporación Interamericana de Entretenimiento. de (BMV:CIEB) Have A Healthy Balance Sheet?

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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Corporación Interamericana de Entretenimiento, S.A.B. de C.V. (BMV:CIEB) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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.

Check out our latest analysis for Corporación Interamericana de Entretenimiento. de

How Much Debt Does Corporación Interamericana de Entretenimiento. de Carry?

As you can see below, at the end of December 2020, Corporación Interamericana de Entretenimiento. de had Mex$2.60b of debt, up from Mex$2.18b a year ago. Click the image for more detail. However, its balance sheet shows it holds Mex$3.33b in cash, so it actually has Mex$736.6m net cash.

How Healthy Is Corporación Interamericana de Entretenimiento. de's Balance Sheet?

The latest balance sheet data shows that Corporación Interamericana de Entretenimiento. de had liabilities of Mex$7.09b due within a year, and liabilities of Mex$3.12b falling due after that. Offsetting this, it had Mex$3.33b in cash and Mex$1.54b in receivables that were due within 12 months. So it has liabilities totalling Mex$5.34b more than its cash and near-term receivables, combined.

Given this deficit is actually higher than the company's market capitalization of Mex$5.25b, we think shareholders really should watch Corporación Interamericana de Entretenimiento. de's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Corporación Interamericana de Entretenimiento. de boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since Corporación Interamericana de Entretenimiento. de will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Corporación Interamericana de Entretenimiento. de had a loss before interest and tax, and actually shrunk its revenue by 65%, to Mex$4.1b. To be frank that doesn't bode well.

So How Risky Is Corporación Interamericana de Entretenimiento. de?

While Corporación Interamericana de Entretenimiento. de lost money on an earnings before interest and tax (EBIT) level, it actually generated positive free cash flow Mex$198m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. Given the lack of transparency around future revenue (and cashflow), we're nervous about this one, until it makes its first big sales. To us, it is a high risk play. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. For instance, we've identified 1 warning sign for Corporación Interamericana de Entretenimiento. de that you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. 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.
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