Source: Eros International.

What: Shares of Eros International (NYSE:EROS), an India-based producer and distributor of Indian films, rose more than 20% on Monday. The company has recently been under attack as anonymous critics sought to expose flaws in Eros' accounting methods and content library.

So what: Today, management addressed many of these attacks in a detailed rebuttal letter, reducing some of the market pressure on its shares. Among other things, Eros said its content collection stretches three decades back, and thus becomes difficult to track using accounting practices designed for more recent productions. Moreover, the company was accused of standing on the brink of bankruptcy, but it can actually point to positive cash flows and a robust balance sheet.

Now what: Digging a bit deeper, the unnamed critics claimed that Eros was riding toward disaster on a crazy train of runaway debt. However, Eros has been reducing its debt-to-EBITDA ratio significantly over the last year, which is a strong sign that the company is becoming more financially healthy rather than less.

And with financial debt of just 1.5 times trailing EBITDA profits, Eros compares well with stateside rivals Lions Gate Entertainment (NYSE:LGF-A) at 3.4 times EBITDA, or CBS (NYSE:CBS), whose ratio stands at 2.8. Lions Gate and CBS are also increasing their effective debt load, while Eros is reducing its own.

In short, I'm buying Eros' explanation, much as investors are in Monday's trading session.

There's still much work to do if Eros wants to entirely erase the effects of this anonymous smear campaign, if that's what it is. The stock is trading some 65% below its 52-week highs, even after Monday's 20% upward surge. The company is set to report full second-quarter results in a couple of weeks, giving management a big stage and a results-based platform from which they can continue chasing down negative rumors.

Anders Bylund has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Lions Gate Entertainment. Try any of our Foolish newsletter services free for 30 days.

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