Is Sinclair (NASDAQ:SBGI) Using Debt Sensibly?

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Sinclair, Inc. (NASDAQ:SBGI) does use debt in its business. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. 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 Sinclair

What Is Sinclair's Debt?

As you can see below, Sinclair had US$4.13b of debt, at June 2024, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$378.0m in cash offsetting this, leading to net debt of about US$3.75b.

How Healthy Is Sinclair's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Sinclair had liabilities of US$686.0m due within 12 months and liabilities of US$4.73b due beyond that. Offsetting this, it had US$378.0m in cash and US$670.0m in receivables that were due within 12 months. So its liabilities total US$4.36b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the US$840.8m company, like a colossus towering over mere mortals. So we'd watch its balance sheet closely, without a doubt. At the end of the day, Sinclair would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Sinclair can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Sinclair made a loss at the EBIT level, and saw its revenue drop to US$3.2b, which is a fall of 3.7%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months Sinclair produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable US$237m at the EBIT level. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. That said, it is possible that the company will turn its fortunes around. But we think that is unlikely, given it is low on liquid assets, and burned through US$313m in the last year. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. Be aware that Sinclair is showing 3 warning signs in our investment analysis , and 2 of those don't sit too well with us...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.