Does Cinemark Holdings (NYSE: CNK) use debt risky?

Warren Buffett said: “Volatility is far from synonymous with risk”. So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Above all, Cinemark Holdings, Inc. (NYSE: CNK) is in debt. But the most important question is: what risk does this debt create?

Why Does Debt Bring Risk?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. 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 share price just to get its debt under control. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

See our latest analysis for Cinemark Holdings

What is Cinemark Holdings’ net debt?

As you can see below, at the end of September 2021, Cinemark Holdings was in debt of $ 2.52 billion, up from $ 2.41 billion a year ago. Click on the image for more details. However, it has $ 543.0 million in cash offsetting that, leading to net debt of around $ 1.98 billion.

NYSE: CNK Debt to Equity History December 5, 2021

How healthy is Cinemark Holdings’ balance sheet?

We can see from the most recent balance sheet that Cinemark Holdings had liabilities of US $ 642.8 million maturing within one year and liabilities of US $ 4.12 billion maturing beyond that. . In return, he had $ 543.0 million in cash and $ 75.1 million in receivables due within 12 months. Its liabilities therefore total $ 4.15 billion more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the $ 1.81 billion company as a colossus towering over mere mortals. We therefore believe that shareholders should monitor it closely. Ultimately, Cinemark Holdings would likely need a major recapitalization if its creditors demanded repayment. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Cinemark Holdings can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Year over 12 months, Cinemark Holdings recorded a loss in EBIT and saw revenue drop to $ 942 million, a decrease of 32%. To be frank, that doesn’t bode well.

Emptor Warning

While Cinemark Holdings’ decline in revenue is about as comforting as a wet blanket, its earnings before interest and taxes (EBIT) can be said to be even less attractive. His EBIT loss was US $ 456 million. Considering that aside from the liabilities mentioned above, we are nervous about the business. It would have to improve its operation quickly for us to take an interest in it. Notably because it has had negative free cash flow of US $ 278 million over the past twelve months. Suffice it to say, then, that we consider the stock to be risky. The balance sheet is clearly the area to focus on when analyzing debt. However, not all investment risks lie on the balance sheet – far from it. Concrete example: we have spotted 2 warning signs for Cinemark Holdings you need to be aware of it, and one of them is a little rude.

Of course, if you are the type of investor who prefers to buy stocks without going into debt, feel free to check out our exclusive list of cash net growth stocks today.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is 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 documents. Simply Wall St has no position in any of the stocks mentioned.

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