MediaCo Holding (NASDAQ:MDIA) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for MediaCo Holding

How Much Debt Does MediaCo Holding Carry?

As you can see below, MediaCo Holding had US$5.95m of debt at March 2023, down from US$100.6m a year prior. However, its balance sheet shows it holds US$10.6m in cash, so it actually has US$4.66m 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$10.6m falling due within a year, and liabilities of US$22.8m due beyond that. On the other hand, it had cash of US$10.6m and US$7.19m worth of receivables due within a year. So it has liabilities totalling US$15.7m more than its cash and near-term receivables, combined.

This deficit is considerable relative to its market capitalization of US$24.1m, so it does suggest shareholders should keep an eye on MediaCo Holding's use of debt. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. Despite its noteworthy liabilities, MediaCo Holding boasts net cash, so it's fair to say it does not have a heavy debt load! When analysing debt levels, the balance sheet is the obvious place to start. 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.

Over 12 months, MediaCo Holding made a loss at the EBIT level, and saw its revenue drop to US$38m, which is a fall of 5.7%. That's not what we would hope to see.

So How Risky Is MediaCo Holding?

Statistically speaking companies that lose money are riskier than those that make money. And we do note that MediaCo Holding had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$2.7m of cash and made a loss of US$12m. Given it only has net cash of US$4.66m, the company may need to raise more capital if it doesn't reach break-even soon. Summing up, we're a little skeptical of this one, as it seems fairly risky in the absence of free cashflow. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 4 warning signs for MediaCo Holding you should be aware of, and 1 of them shouldn'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.