Does Live Nation Entertainment (NYSE:LYV) 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.' 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 Live Nation Entertainment, Inc. (NYSE:LYV) does use debt in its business. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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 think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Live Nation Entertainment

How Much Debt Does Live Nation Entertainment Carry?

You can click the graphic below for the historical numbers, but it shows that as of September 2021 Live Nation Entertainment had US$5.73b of debt, an increase on US$4.94b, over one year. On the flip side, it has US$4.63b in cash leading to net debt of about US$1.10b.

A Look At Live Nation Entertainment's Liabilities

We can see from the most recent balance sheet that Live Nation Entertainment had liabilities of US$5.56b falling due within a year, and liabilities of US$7.55b due beyond that. Offsetting this, it had US$4.63b in cash and US$1.18b in receivables that were due within 12 months. So its liabilities total US$7.30b more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since Live Nation Entertainment has a huge market capitalization of US$25.1b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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 Live Nation Entertainment 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, Live Nation Entertainment made a loss at the EBIT level, and saw its revenue drop to US$3.8b, which is a fall of 16%. We would much prefer see growth.

Caveat Emptor

Not only did Live Nation Entertainment's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at US$699m. 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. So we think its balance sheet is a little strained, though not beyond repair. We would feel better if it turned its trailing twelve month loss of US$896m into a profit. So to be blunt we do think it is risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Live Nation Entertainment you should know about.

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.

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.