Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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. Importantly, MediaCo Holding Inc. (NASDAQ:MDIA) does carry debt. But the more important question is: how much risk is that debt creating?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.
View our latest analysis for MediaCo Holding
What Is MediaCo Holding's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of December 2020 MediaCo Holding had US$95.8m of debt, an increase on US$81.3m, over one year. On the flip side, it has US$4.17m in cash leading to net debt of about US$91.6m.
How Strong Is MediaCo Holding's Balance Sheet?
According to the last reported balance sheet, MediaCo Holding had liabilities of US$77.7m due within 12 months, and liabilities of US$55.4m due beyond 12 months. Offsetting this, it had US$4.17m in cash and US$8.51m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$120.4m.
The deficiency here weighs heavily on the US$23.9m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, MediaCo Holding would probably need a major re-capitalization if its creditors were to demand repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But it is MediaCo Holding's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.
In the last year MediaCo Holding had a loss before interest and tax, and actually shrunk its revenue by 20%, to US$39m. That's not what we would hope to see.
Caveat Emptor
Not only did MediaCo Holding's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at US$1.5m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. But we think that is unlikely, given it is low on liquid assets, and burned through US$10m in the last year. So we think this stock is risky, like walking through a dirty dog park with a mask on. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that MediaCo Holding is showing 4 warning signs in our investment analysis , and 2 of those are a bit concerning...
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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About NasdaqCM:MDIA
Moderate with worrying balance sheet.
