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These 4 Measures Indicate That Event Hospitality & Entertainment (ASX:EVT) Is Using Debt Extensively

The external fund manager backed by Berkshire Hathaway’s Charlie Munger, Li Lu, makes no bones about it when he says ‘The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.’ When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Event Hospitality Entertainment Limited (ASX:EVT) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can’t fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company’s debt levels is to consider its cash and debt together.

Check out our latest analysis for Event Hospitality Entertainment

What Is Event Hospitality Entertainment’s Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2018 Event Hospitality Entertainment had AU$420.1m of debt, an increase on AU$375.4m, over one year. However, because it has a cash reserve of AU$78.1m, its net debt

Article source: https://finance.yahoo.com/news/4-measures-indicate-event-hospitality-022454048.html

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