Does Métropole Télévision (EPA:MMT) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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, Métropole Télévision S.A. (EPA:MMT) does carry debt. But the real question is whether this debt is making the company risky.

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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Métropole Télévision

What Is Métropole Télévision's Net Debt?

The image below, which you can click on for greater detail, shows that Métropole Télévision had debt of €82.2m at the end of December 2024, a reduction from €126.3m over a year. But on the other hand it also has €332.4m in cash, leading to a €250.2m net cash position.

How Strong Is Métropole Télévision's Balance Sheet?

According to the last reported balance sheet, Métropole Télévision had liabilities of €534.1m due within 12 months, and liabilities of €171.8m due beyond 12 months. On the other hand, it had cash of €332.4m and €282.5m worth of receivables due within a year. So its liabilities total €91.0m more than the combination of its cash and short-term receivables.

Given Métropole Télévision has a market capitalization of €1.66b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Métropole Télévision boasts net cash, so it's fair to say it does not have a heavy debt load!

On the other hand, Métropole Télévision's EBIT dived 18%, over the last year. If that rate of decline in earnings continues, the company could find itself in a tight spot. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Métropole Télévision can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Métropole Télévision 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 most recent three years, Métropole Télévision recorded free cash flow worth 69% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Métropole Télévision has €250.2m in net cash. The cherry on top was that in converted 69% of that EBIT to free cash flow, bringing in €131m. So we are not troubled with Métropole Télévision's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 2 warning signs with Métropole Télévision , and understanding them should be part of your investment process.

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.