Rather than worrying about stock volatility, Howard Marks said, “The potential for permanent loss is the risk that worries me…and every real investor I know worries.” I am.” So smart rich people seem to know that debt (usually associated with bankruptcy) is a very important factor in assessing a company’s risk. Importantly, Chicken Soup by Soul Entertainment, Inc. (NASDAQ:CSSE) is in debt. But the bigger question is how much risk does that liability create?
when debt is dangerous
Debt and other liabilities become dangerous to a business when it cannot easily meet these obligations through free cash flow or raising capital at an attractive price. In the worst case, companies that cannot pay their creditors may go bankrupt. However, what happens more frequently (but costly) is when a company has to permanently dilute its shareholders and issue shares at a bargain just to strengthen its balance sheet. But by displacing dilution, debt can be a very good tool for companies that need capital to invest in growth at high returns. First, we look at both cash and debt levels together.
Check out Seoul Entertainment’s latest analysis on chicken soup
How much debt does Seoul Entertainment’s Chicken Soup have?
The image below, which you can click for more information, shows that as of September 2022, Seoul Entertainment’s Chicken Soup had a debt of US$463.9 million. However, he also had US$32.2 million in cash, so his net debt is US$431.7 million.
How strong is Chicken Soup on Seoul Entertainment’s balance sheet?
A closer look at the latest balance sheet data shows that Seoul Entertainment’s Chicken Soup has $141.3 million in debt due within 12 months and $650.8 million in debt due thereafter. . Offsetting these obligations were US$32.2 million in cash and US$96.1 million worth of his debts to be paid within 12 months. Therefore, its liabilities are US$663.8 million more than its combined cash and short-term receivables.
The shortfall here weighs heavily on the $130.2 million company itself. It is as if a child is suffering under the weight of a huge backpack full of books, sports equipment and trumpets. Therefore, we believe that shareholders should monitor this carefully. After all, Seoul Entertainment’s Chicken Soup could need a massive recapitalization if it has to pay its creditors today. Clearly, the balance sheet is the starting point when analyzing debt levels.But it’s future earnings above all that will determine Chicken Soup For The Soul Entertainment’s ability to maintain a healthy balance sheet going forward. So if your focus is on the future, check this out. please freedom A report that shows an analyst’s profit forecast.
Last year, Soul Entertainment’s Chicken Soup wasn’t profitable at the EBIT level, but grew revenue by 85% to reach $175 million. With any luck, the company will be on its way to profitability.
Buyer’s responsibility
Seoul Entertainment’s Chicken Soup managed to grow its top line quite nicely, but the cold truth is that it’s losing its EBIT line. His EBIT loss was a whopping US$60 million. Combining this information with the significant debt already mentioned makes me very hesitant about this stock, to say the least. Of course, a little luck and execution might improve the situation. However, given his low liquidity and he ran out of $62 million last year, we think it’s unlikely. Therefore, we consider this strain to be as dangerous as walking through a dirty dog park with a mask on. Arguably, we learn the most about debt from the balance sheet. Ultimately, however, all companies may have the risk of existing off balance sheets. for example, Two Warning Signs for Seoul Entertainment’s Chicken Soup What you should know.
Check this out if you’re interested in investing in a profitable business without debt. freedom List of growth companies with net cash on their balance sheets.
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This article by Simply Wall St is general in nature. We provide comments based on historical data and analyst projections using only unbiased methodologies and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. We aim to deliver long-term focused analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Is not …
