Health Check: How Prudently Does Liberty Braves Group (NASDAQ:BATR.K) Use Debt?

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. Importantly, The Liberty Braves Group (NASDAQ:BATR.K) does carry debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Liberty Braves Group

What Is Liberty Braves Group's Debt?

The chart below, which you can click on for greater detail, shows that Liberty Braves Group had US$691.0m in debt in June 2021; about the same as the year before. However, because it has a cash reserve of US$168.0m, its net debt is less, at about US$523.0m.

How Strong Is Liberty Braves Group's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Liberty Braves Group had liabilities of US$153.0m due within 12 months and liabilities of US$1.19b due beyond that. On the other hand, it had cash of US$168.0m and US$55.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$1.12b.

This deficit is considerable relative to its market capitalization of US$1.33b, so it does suggest shareholders should keep an eye on Liberty Braves Group's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Liberty Braves Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Given it has no significant operating revenue at the moment, shareholders will be hoping Liberty Braves Group can make progress and gain better traction for the business, before it runs low on cash.

Caveat Emptor

Importantly, Liberty Braves Group had an earnings before interest and tax (EBIT) loss over the last year. Indeed, it lost US$60m at the EBIT level. 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. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through US$65m of cash over the last year. So suffice it to say we do consider the stock to be risky. 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 example, we've discovered 2 warning signs for Liberty Braves Group that you should be aware of before investing here.

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.
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