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Warren Buffett famously said, ‘Volatility is far from synonymous with risk.’ 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. As with many other companies Live Nation Entertainment, Inc. (NYSE:LYV) makes use of debt. But should shareholders be worried about its use of debt?
Why Does Debt Bring Risk?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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. The first step when considering a company’s debt levels is to consider its cash and debt together.
View our latest analysis for Live Nation Entertainment
What Is Live Nation Entertainment’s Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2023 Live Nation Entertainment had US$6.61b of debt, an increase on US$5.75b, over one year. However, its balance sheet shows it holds US$7.13b in cash, so it actually has US$522.7m net cash.
How Strong Is Live Nation Entertainment’s Balance Sheet?
The latest balance sheet data shows that Live Nation Entertainment had liabilities of US$10.0b due within a year, and liabilities of US$8.78b falling due after that. Offsetting these obligations, it had cash of US$7.13b as well as receivables valued at US$1.89b due within 12 months. So its liabilities total US$9.78b more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Live Nation Entertainment has a huge market capitalization of US$18.8b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Live Nation Entertainment boasts net cash, so it’s fair to say it does not have a heavy debt load!
Pleasingly, Live Nation Entertainment is growing its EBIT faster than former Australian PM Bob Hawke downs a yard glass, boasting a 158% gain in the last twelve months. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Live Nation Entertainment’s ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Live Nation Entertainment has net cash on its balance sheet, it’s still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Happily for any shareholders, Live Nation Entertainment actually produced more free cash flow than EBIT over the last two years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
While Live Nation Entertainment does have more liabilities than liquid assets, it also has net cash of US$522.7m. And it impressed us with free cash flow of US$1.5b, being 264% of its EBIT. So we don’t think Live Nation Entertainment’s use of debt is risky. We’d be motivated to research the stock further if we found out that Live Nation Entertainment insiders have bought shares recently. If you would too, then you’re in luck, since today we’re sharing our list of reported insider transactions for free.
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.
What are the risks and opportunities for Live Nation Entertainment?
Trading at 39.6% below our estimate of its fair value
Earnings are forecast to grow 25.87% per year
Became profitable this year
No risks detected for LYV from our risks checks.
View all Risks and Rewards
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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.