Is Telefônica Brasil (BVMF:VIVT3) A Risky Investment?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. Importantly, Telefônica Brasil S.A. (BVMF:VIVT3) does carry debt. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Telefônica Brasil's Net Debt?

The image below, which you can click on for greater detail, shows that Telefônica Brasil had debt of R$4.01b at the end of September 2025, a reduction from R$5.30b over a year. However, its balance sheet shows it holds R$6.80b in cash, so it actually has R$2.78b net cash.

How Healthy Is Telefônica Brasil's Balance Sheet?

The latest balance sheet data shows that Telefônica Brasil had liabilities of R$23.9b due within a year, and liabilities of R$31.5b falling due after that. On the other hand, it had cash of R$6.80b and R$13.1b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by R$35.5b.

This deficit isn't so bad because Telefônica Brasil is worth a massive R$111.7b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. Despite its noteworthy liabilities, Telefônica Brasil boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Telefônica Brasil

We saw Telefônica Brasil grow its EBIT by 9.5% in the last twelve months. That's far from incredible but it is a good thing, when it comes to paying off debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Telefônica Brasil's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. Telefônica Brasil may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the last three years, Telefônica Brasil actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While Telefônica Brasil does have more liabilities than liquid assets, it also has net cash of R$2.78b. And it impressed us with free cash flow of R$10b, being 115% of its EBIT. So we don't have any problem with Telefônica Brasil's use of debt. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example - Telefônica Brasil has 1 warning sign we think you should be aware of.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.