Is John Wiley & Sons (NYSE:WLY) Using Too Much Debt?

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. As with many other companies John Wiley & Sons, Inc. (NYSE:WLY) makes use of debt. But is this debt a concern to shareholders?

We've discovered 4 warning signs about John Wiley & Sons. View them for free.

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

What Is John Wiley & Sons's Net Debt?

The chart below, which you can click on for greater detail, shows that John Wiley & Sons had US$887.8m in debt in January 2025; about the same as the year before. On the flip side, it has US$104.7m in cash leading to net debt of about US$783.1m.

How Healthy Is John Wiley & Sons' Balance Sheet?

We can see from the most recent balance sheet that John Wiley & Sons had liabilities of US$717.3m falling due within a year, and liabilities of US$1.20b due beyond that. Offsetting these obligations, it had cash of US$104.7m as well as receivables valued at US$184.7m due within 12 months. So its liabilities total US$1.63b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of US$2.22b, so it does suggest shareholders should keep an eye on John Wiley & Sons' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry.

See our latest analysis for John Wiley & Sons

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

John Wiley & Sons has a debt to EBITDA ratio of 2.7 and its EBIT covered its interest expense 4.5 times. This suggests that while the debt levels are significant, we'd stop short of calling them problematic. We saw John Wiley & Sons grow its EBIT by 3.2% in the last twelve months. Whilst that hardly knocks our socks off it is a positive when it comes to debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if John Wiley & Sons 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, John Wiley & Sons produced sturdy free cash flow equating to 63% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Our View

Neither John Wiley & Sons's ability to handle its total liabilities nor its net debt to EBITDA gave us confidence in its ability to take on more debt. But it seems to be able to convert EBIT to free cash flow without much trouble. Looking at all the angles mentioned above, it does seem to us that John Wiley & Sons is a somewhat risky investment as a result of its debt. Not all risk is bad, as it can boost share price returns if it pays off, but this debt risk is worth keeping in mind. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 4 warning signs with John Wiley & Sons , and understanding them should be part of your investment process.

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.