The Debt Dogs of Media

Charlie Munger, Warren Buffett's business partner, has condemned drugs, liquor, and leverage as humanity's three biggest downfalls. The first two are your own responsibility, but if you're invested -- or are thinking about investing -- in the media industry, you should know which companies in the space are the deepest in debt.

Leverage is not inherently bad for a company. A fast-growing company can intelligently employ debt to exploit its market opportunity. At low interest rates, debt can fund shrewd strategic acquisitions. Since it's generally cheaper than equity, debt can also lower a company's cost of capital.

But too often, companies end up abusing debt -- and as Munger reminds us, excessive leverage can lead to ruin. Let's examine a few of the most heavily indebted media companies.


Total Debt/Capital

Interest Coverage

Cumulus Media (Nasdaq: CMLS  )



Playboy Enterprises (NYSE: PLA  )



Cablevision Systems (NYSE: CVC  )






DISH Network (Nasdaq: DISH  )



First, all five of these companies have massive debt-to-capital ratios, each with well over 100% of their capital in debt. This implies that that these companies have negative equity. In other words, if they were forced to liquidate all their assets at book value prices, they would not take in enough cash to pay off their debts.

Likewise, with the exception of DISH Network, these companies have very low interest coverage ratios. With all the debt on each of their books, we can understand why they are using so much of their operating income simply to make interest payments. Note that Playboy's interest coverage ratio is less than one -- the company isn't even making enough money to pay its interest, which jibes with the recent news that the company is being taken private.

Just as all of these stocks is heavily indebted, they are also all pricey. The stock sporting the lowest enterprise-to-EBITDA multiple is LIN TV, and its multiple is still at 8.0 times -- not exactly cheap. The combination of high leverage and rich valuations can be a deadly one. Investors in any of these five media companies need to do their homework carefully.

For an easy way to stay current on any of these stocks, add them to My Watchlist:

Neither Alex nor The Motley Fool owns stock in any company mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (2)

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1448787, ~/Articles/ArticleHandler.aspx, 10/25/2016 12:59:05 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
CMLS $1.90 Up +0.03 +1.60%
Cumulus Media CAPS Rating: No stars
CVC.DL $0.00 Down +0.00 +0.00%
Cablevision System… CAPS Rating: *
DISH $58.56 Up +1.16 +2.02%
DISH Network CAPS Rating: **
LIN.DL $0.00 Down +0.00 +0.00%
LIN TV Corp. CAPS Rating: No stars
PLA.DL2 $0.00 Down +0.00 +0.00%
Playboy Enterprise… CAPS Rating: *