Atresmedia Corporación de Medios de Comunicación (BME:A3M) Has A Rock Solid Balance Sheet

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.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Atresmedia Corporación de Medios de Comunicación, S.A. (BME:A3M) does carry debt. But should shareholders be worried about its use of debt?

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Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

What Is Atresmedia Corporación de Medios de Comunicación's Debt?

You can click the graphic below for the historical numbers, but it shows that Atresmedia Corporación de Medios de Comunicación had €172.1m of debt in December 2024, down from €184.2m, one year before. However, its balance sheet shows it holds €307.7m in cash, so it actually has €135.6m net cash.

How Strong Is Atresmedia Corporación de Medios de Comunicación's Balance Sheet?

The latest balance sheet data shows that Atresmedia Corporación de Medios de Comunicación had liabilities of €557.3m due within a year, and liabilities of €116.1m falling due after that. On the other hand, it had cash of €307.7m and €279.4m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €86.2m.

Of course, Atresmedia Corporación de Medios de Comunicación has a market capitalization of €1.36b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Atresmedia Corporación de Medios de Comunicación boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Atresmedia Corporación de Medios de Comunicación

The good news is that Atresmedia Corporación de Medios de Comunicación has increased its EBIT by 7.2% over twelve months, which should ease any concerns about debt repayment. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Atresmedia Corporación de Medios de Comunicación can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Atresmedia Corporación de Medios de Comunicación 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. During the last three years, Atresmedia Corporación de Medios de Comunicación generated free cash flow amounting to a very robust 83% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Atresmedia Corporación de Medios de Comunicación has €135.6m in net cash. The cherry on top was that in converted 83% of that EBIT to free cash flow, bringing in €166m. So is Atresmedia Corporación de Medios de Comunicación's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Atresmedia Corporación de Medios de Comunicación you should be aware of, and 2 of them are a bit unpleasant.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.