We Think Métropole Télévision (EPA:MMT) Can Stay On Top Of Its Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. We can see that Métropole Télévision S.A. (EPA:MMT) does use debt in its business. But is this debt a concern to shareholders?

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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. If things get really bad, the lenders can take control of the business. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

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?

We can see from the most recent balance sheet that Métropole Télévision had liabilities of €534.1m falling due within a year, and liabilities of €171.8m due beyond that. Offsetting these obligations, it had cash of €332.4m as well as receivables valued at €282.5m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €91.0m.

Since publicly traded Métropole Télévision shares are worth a total of €1.58b, it seems unlikely that this level of liabilities would be a major threat. 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, Métropole Télévision boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Métropole Télévision

But the bad news is that Métropole Télévision has seen its EBIT plunge 18% in the last twelve months. If that rate of decline in earnings continues, the company could find itself in a tight spot. 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 want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Métropole Télévision has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Métropole Télévision produced sturdy free cash flow equating to 69% of its EBIT, about what we'd expect. 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. And it impressed us with free cash flow of €131m, being 69% of its EBIT. So we are not troubled with Métropole Télévision's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Métropole Télévision you should be aware of.

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.