These 4 Measures Indicate That Métropole Télévision (EPA:MMT) Is Using Debt Reasonably Well

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. We note that Métropole Télévision S.A. (EPA:MMT) does have debt on its balance sheet. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Métropole Télévision

How Much Debt Does Métropole Télévision Carry?

The chart below, which you can click on for greater detail, shows that Métropole Télévision had €126.7m in debt in June 2023; about the same as the year before. But it also has €305.6m in cash to offset that, meaning it has €178.9m net cash.

How Healthy Is Métropole Télévision's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Métropole Télévision had liabilities of €487.2m due within 12 months and liabilities of €210.3m due beyond that. On the other hand, it had cash of €305.6m and €301.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €90.1m.

Given Métropole Télévision has a market capitalization of €1.52b, 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 saw its EBIT drop by 7.3% in the last twelve months. That sort of decline, if sustained, will obviously make debt harder to handle. 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 Métropole Télévision 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, while the tax-man may adore accounting profits, lenders only accept 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 77% 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 €178.9m in net cash. And it impressed us with free cash flow of €238m, being 77% of its EBIT. So we don't think Métropole Télévision's use of debt is 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. To that end, you should be aware of the 1 warning sign we've spotted with Métropole Télévision .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.