Live Nation Entertainment (NYSE:LYV) Has A Rock Solid Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Live Nation Entertainment, Inc. (NYSE:LYV) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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 examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Live Nation Entertainment

What Is Live Nation Entertainment's Net Debt?

As you can see below, Live Nation Entertainment had US$6.22b of debt at March 2024, down from US$6.61b a year prior. But on the other hand it also has US$6.50b in cash, leading to a US$282.2m net cash position.

How Healthy Is Live Nation Entertainment's Balance Sheet?

The latest balance sheet data shows that Live Nation Entertainment had liabilities of US$11.3b due within a year, and liabilities of US$7.25b falling due after that. Offsetting these obligations, it had cash of US$6.50b as well as receivables valued at US$2.28b due within 12 months. So its liabilities total US$9.80b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Live Nation Entertainment is worth a massive US$21.8b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Live Nation Entertainment also has more cash than debt, so we're pretty confident it can manage its debt safely.

Also positive, Live Nation Entertainment grew its EBIT by 26% in the last year, and that should make it easier to pay down debt, going forward. 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're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Live Nation Entertainment may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last two years, Live Nation Entertainment actually produced more free cash flow than EBIT. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

While Live Nation Entertainment does have more liabilities than liquid assets, it also has net cash of US$282.2m. And it impressed us with free cash flow of US$700m, being 106% of its EBIT. So is Live Nation Entertainment's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Live Nation Entertainment's earnings per share history for free.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com