Is Grupo Media Capital SGPS (ELI:MCP) Weighed On By Its Debt Load?

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.' 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. As with many other companies Grupo Media Capital, SGPS, S.A. (ELI:MCP) makes use of debt. But should shareholders be worried about its use of debt?

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. 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, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out the opportunities and risks within the XX Media industry.

How Much Debt Does Grupo Media Capital SGPS Carry?

The image below, which you can click on for greater detail, shows that Grupo Media Capital SGPS had debt of €10.5m at the end of June 2022, a reduction from €77.7m over a year. On the flip side, it has €1.04m in cash leading to net debt of about €9.46m.

How Healthy Is Grupo Media Capital SGPS' Balance Sheet?

The latest balance sheet data shows that Grupo Media Capital SGPS had liabilities of €69.4m due within a year, and liabilities of €17.7m falling due after that. Offsetting these obligations, it had cash of €1.04m as well as receivables valued at €15.0m due within 12 months. So its liabilities total €71.1m more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €84.5m, so it does suggest shareholders should keep an eye on Grupo Media Capital SGPS' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. When analysing debt levels, the balance sheet is the obvious place to start. But it is Grupo Media Capital SGPS'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.

Over 12 months, Grupo Media Capital SGPS reported revenue of €144m, which is a gain of 8.3%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Grupo Media Capital SGPS produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €3.6m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of €7.5m 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Grupo Media Capital SGPS (of which 3 shouldn't be ignored!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.