WideOpenWest (NYSE:WOW) Has Debt But No Earnings; Should You Worry?

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 WideOpenWest, Inc. (NYSE:WOW) does use debt in its business. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for WideOpenWest

How Much Debt Does WideOpenWest Carry?

The image below, which you can click on for greater detail, shows that at March 2023 WideOpenWest had debt of US$771.7m, up from US$717.6m in one year. On the flip side, it has US$21.2m in cash leading to net debt of about US$750.5m.

A Look At WideOpenWest's Liabilities

The latest balance sheet data shows that WideOpenWest had liabilities of US$190.4m due within a year, and liabilities of US$1.02b falling due after that. Offsetting these obligations, it had cash of US$21.2m as well as receivables valued at US$48.1m due within 12 months. So its liabilities total US$1.14b more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the US$652.1m 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, WideOpenWest would probably need a major re-capitalization if its creditors were to demand repayment. 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 WideOpenWest 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.

Over 12 months, WideOpenWest made a loss at the EBIT level, and saw its revenue drop to US$703m, which is a fall of 2.3%. We would much prefer see growth.

Caveat Emptor

Over the last twelve months WideOpenWest produced an earnings before interest and tax (EBIT) loss. Indeed, it lost US$7.2m at the EBIT level. Considering that alongside the liabilities mentioned above make us nervous about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it burned through US$168m in negative free cash flow over the last year. That means it's on the risky side of things. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Be aware that WideOpenWest is showing 1 warning sign in our investment analysis , you should know about...

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.