Does MediaCo Holding (NASDAQ:MDIA) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. We note that MediaCo Holding Inc. (NASDAQ:MDIA) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. 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.

Check out our latest analysis for MediaCo Holding

What Is MediaCo Holding's Net Debt?

As you can see below, MediaCo Holding had US$71.6m of debt at September 2022, down from US$97.2m a year prior. However, it does have US$5.88m in cash offsetting this, leading to net debt of about US$65.7m.

How Healthy Is MediaCo Holding's Balance Sheet?

We can see from the most recent balance sheet that MediaCo Holding had liabilities of US$16.0m falling due within a year, and liabilities of US$92.5m due beyond that. Offsetting these obligations, it had cash of US$5.88m as well as receivables valued at US$8.94m due within 12 months. So it has liabilities totalling US$93.7m more than its cash and near-term receivables, combined.

This deficit casts a shadow over the US$26.2m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. After all, MediaCo Holding would likely require a major re-capitalisation if it had to pay its creditors today. When analysing debt levels, the balance sheet is the obvious place to start. But you can't view debt in total isolation; since MediaCo Holding will need earnings to service that debt. 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 MediaCo Holding's revenue was pretty flat, and it made a negative EBIT. While that hardly impresses, its not too bad either.

Caveat Emptor

Importantly, MediaCo Holding had an earnings before interest and tax (EBIT) loss over the last year. To be specific the EBIT loss came in at US$839k. If you consider the significant liabilities mentioned above, we are extremely wary of this investment. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely since it is low on liquid assets, and made a loss of US$16m in the last year. So we think this stock is quite risky. We'd prefer to pass. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example MediaCo Holding has 4 warning signs (and 2 which don't sit too well with us) we think you should know about.

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.

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.