Telefónica Chile (SNSE:CTC) Has Debt But No Earnings; Should You Worry?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Telefónica Chile S.A. (SNSE:CTC) makes use of debt. But the more important question is: how much risk is that debt creating?

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Telefónica Chile's Net Debt?

The image below, which you can click on for greater detail, shows that Telefónica Chile had debt of CL$25.9b at the end of June 2025, a reduction from CL$74.2b over a year. However, it also had CL$12.8b in cash, and so its net debt is CL$13.1b.

How Strong Is Telefónica Chile's Balance Sheet?

According to the last reported balance sheet, Telefónica Chile had liabilities of CL$452.5b due within 12 months, and liabilities of CL$136.9b due beyond 12 months. Offsetting these obligations, it had cash of CL$12.8b as well as receivables valued at CL$282.0b due within 12 months. So it has liabilities totalling CL$294.7b more than its cash and near-term receivables, combined.

This is a mountain of leverage relative to its market capitalization of CL$326.3b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. When analysing debt levels, the balance sheet is the obvious place to start. But it is Telefónica Chile's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

View our latest analysis for Telefónica Chile

Over 12 months, Telefónica Chile made a loss at the EBIT level, and saw its revenue drop to CL$890b, which is a fall of 7.4%. We would much prefer see growth.

Caveat Emptor

Importantly, Telefónica Chile had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping CL$61b. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled CL$3.6b in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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, we've discovered 3 warning signs for Telefónica Chile (2 don't sit too well with us!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.