Here's Why Endeavor Group Holdings (NYSE:EDR) Can Afford Some Debt

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.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Endeavor Group Holdings, Inc. (NYSE:EDR) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Endeavor Group Holdings

What Is Endeavor Group Holdings's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Endeavor Group Holdings had US$5.68b of debt, an increase on US$5.03b, over one year. However, it also had US$1.20b in cash, and so its net debt is US$4.48b.

How Strong Is Endeavor Group Holdings' Balance Sheet?

The latest balance sheet data shows that Endeavor Group Holdings had liabilities of US$5.00b due within a year, and liabilities of US$5.48b falling due after that. On the other hand, it had cash of US$1.20b and US$881.0m worth of receivables due within a year. So its liabilities total US$8.40b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its very significant market capitalization of US$13.5b, so it does suggest shareholders should keep an eye on Endeavor Group Holdings' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Endeavor Group Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Endeavor Group Holdings wasn't profitable at an EBIT level, but managed to grow its revenue by 19%, to US$7.1b. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Endeavor Group Holdings produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at US$77m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. For example, we would not want to see a repeat of last year's loss of US$100m. So we do think this stock is quite risky. For riskier companies like Endeavor Group Holdings I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.