Is Everyman Media Group (LON:EMAN) weighed down by its debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We note that Everyman Media Group plc (LON:EMAN) has debt on its balance sheet. But the real question is whether this debt makes the business risky.

What risk does debt carry?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business has is to look at its cash flow and debt together.

Check out our latest analysis for Everyman Media Group

What is Everyman Media Group’s net debt?

You can click on the graph below for historical figures, but it shows that in December 2021, Everyman Media Group had debt of £12.6m, up from £9.04m sterling, over one year. However, as he has a cash reserve of £4.24m, his net debt is lower at around £8.38m.

AIM:EMAN Debt to Equity History May 12, 2022

A Look at Everyman Media Group’s Responsibilities

The latest balance sheet data shows Everyman Media Group had liabilities of £19.1million due within a year, and liabilities of £92.8million falling due thereafter. On the other hand, it had cash of £4.24 million and £5.65 million of receivables due within the year. Thus, its liabilities total £102.0 million more than the combination of its cash and short-term receivables.

This deficit is considerable compared to its market capitalization of £106.7 million, so he suggests that shareholders monitor the use of debt by Everyman Media Group. If its lenders asked it to shore up its balance sheet, shareholders would likely face significant dilution. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future earnings, more than anything, that will determine Everyman Media Group’s ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Last year, Everyman Media Group was not profitable on an EBIT level, but managed to increase its turnover by 101%, to £49 million. There is therefore no doubt that shareholders encourage growth

Caveat Emptor

While we can certainly appreciate Everyman Media Group’s revenue growth, its earnings before interest and tax (EBIT) loss is less than ideal. Indeed, it lost £8.5 million in EBIT. When we look at this and recall the liabilities on its balance sheet, versus cash, it seems unwise to us that the company has liabilities. Quite frankly, we think the track record falls short, although it could improve over time. We’d feel better if he turned his £5.4m year-over-year loss into a profit. So, to be frank, we think it’s risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. Be aware that Everyman Media Group shows 1 warning sign in our investment analysis you should know…

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

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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