We Think Métropole Télévision (EPA:MMT) Can Manage Its Debt With Ease

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Métropole Télévision S.A. (EPA:MMT) does carry debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

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 frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

See 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 at June 2023 Métropole Télévision had debt of €140.6m, up from €127.0m in one year. But on the other hand it also has €305.6m in cash, leading to a €165.0m net cash position.

How Strong Is Métropole Télévision's Balance Sheet?

The latest balance sheet data shows that Métropole Télévision had liabilities of €487.2m due within a year, and liabilities of €210.3m falling due after that. Offsetting this, it had €305.6m in cash and €301.8m in receivables that were due within 12 months. So its liabilities total €90.1m more than the combination of its cash and short-term receivables.

Given Métropole Télévision has a market capitalization of €1.60b, 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. While it does have liabilities worth noting, Métropole Télévision also has more cash than debt, so we're pretty confident it can manage its debt safely.

While Métropole Télévision doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Métropole Télévision'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, 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 last three years, Métropole Télévision recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

We could understand if investors are concerned about Métropole Télévision's liabilities, but we can be reassured by the fact it has has net cash of €165.0m. And it impressed us with free cash flow of €238m, being 85% of its EBIT. So is Métropole Télévision'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. Be aware that Métropole Télévision is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning...

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.