Does MediaCo Holding (NASDAQ:MDIA) 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.' 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, MediaCo Holding Inc. (NASDAQ:MDIA) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for MediaCo Holding

What Is MediaCo Holding's Debt?

As you can see below, MediaCo Holding had US$5.95m of debt at September 2023, down from US$71.6m a year prior. However, its balance sheet shows it holds US$6.41m in cash, so it actually has US$463.0k net cash.

How Strong Is MediaCo Holding's Balance Sheet?

We can see from the most recent balance sheet that MediaCo Holding had liabilities of US$6.96m falling due within a year, and liabilities of US$23.4m due beyond that. On the other hand, it had cash of US$6.41m and US$7.04m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$16.9m.

When you consider that this deficiency exceeds the company's US$15.2m market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution. MediaCo Holding 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. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since MediaCo Holding 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 MediaCo Holding wasn't profitable at an EBIT level, but managed to grow its revenue by 24%, to US$36m. With any luck the company will be able to grow its way to profitability.

So How Risky Is MediaCo Holding?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And the fact is that over the last twelve months MediaCo Holding lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$7.0m and booked a US$9.5m accounting loss. With only US$463.0k on the balance sheet, it would appear that its going to need to raise capital again soon. With very solid revenue growth in the last year, MediaCo Holding may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. 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. Case in point: We've spotted 5 warning signs for MediaCo Holding you should be aware of, and 3 of them can't be ignored.

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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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.