Does Score Media and Gaming (TSE: SCR) use debt in a risky way?
Warren Buffett said: “Volatility is far from synonymous with risk”. When we think about the risk level of a business, we always like to look at its use of debt, because debt overload can lead to bankruptcy. Like many other companies Score Media and Gaming Inc. (TSE: SCR) uses debt. But the real question is whether this debt makes the business risky.
What risk does debt entail?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap stock price just to get its debt under control. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business 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 flow and debt together.
Check out our latest analysis for Score Media and Gaming
What is Score Media and Gaming Debt?
You can click on the graph below for historical numbers, but it shows that in February 2021, Score Media and Gaming had a debt of C $ 32.4 million, an increase of C $ 27.0 million. over a year. However, it has C $ 44.7 million in cash, which translates into a net cash position of C $ 12.3 million.
How healthy is Score Media and the gaming record?
We can see from the most recent balance sheet that Score Media and Gaming had C $ 20.8 million liabilities due in one year, and C $ 29.1 million liabilities beyond. In return, he had C $ 44.7 million in cash and C $ 10.3 million in receivables due within 12 months. So he actually has C $ 5.09 million After liquid assets than total liabilities.
This state of affairs indicates that Score Media and Gaming’s balance sheet looks quite strong, as its total liabilities roughly equal its cash. So while it’s hard to imagine the C $ 906.9 million company struggling to make any money, we still think it’s worth watching its balance sheet. In short, Score Media and Gaming enjoys net cash flow, so it’s fair to say that it doesn’t have heavy debt! When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Score Media and Gaming can strengthen its balance sheet over time. So if you are focused on the future you can check out this free report showing analysts’ earnings forecasts.
Over 12 months, Score Media and Gaming recorded a loss in EBIT and saw its revenue drop to C $ 19 million, a decrease of 38%. It makes us nervous, to say the least.
So how risky are Score Media and Gaming?
Statistically speaking, businesses that lose money are riskier than those that make money. And over the past year, Score Media and Gaming has recorded a loss before interest and taxes (EBIT), frankly. In fact, during that time, he burned C $ 41 million in cash and lost C $ 54 million. With only $ 12.3 million Canadian on the balance sheet, it seems that we will have to raise capital again soon. Even if its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company does not regularly generate free cash flow. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. For example, we discovered 3 warning signs for Score Media and Gaming which you should be aware of before investing here.
If you want to invest in companies that can generate profits without the burden of debt, take a look at this free list of growing companies that have net cash on the balance sheet.
If you want to trade a wide range of investments, open an account with the cheapest platform * approved by professionals, Interactive brokers. Their clients from more than 200 countries and territories trade stocks, options, futures, currencies, bonds and funds around the world from a single integrated account.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
*Interactive Brokers ranked Least Expensive Broker by StockBrokers.com Annual Online Review 2020
Do you have any comments on this article? Concerned about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.