Is Télévision Française 1 Société anonyme (EPA:TFI) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that Télévision Française 1 Société anonyme (EPA:TFI) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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.

View our latest analysis for Télévision Française 1 Société anonyme

What Is Télévision Française 1 Société anonyme's Debt?

As you can see below, Télévision Française 1 Société anonyme had €228.5m of debt at September 2021, down from €280.4m a year prior. However, its balance sheet shows it holds €264.8m in cash, so it actually has €36.3m net cash.

A Look At Télévision Française 1 Société anonyme's Liabilities

The latest balance sheet data shows that Télévision Française 1 Société anonyme had liabilities of €1.53b due within a year, and liabilities of €311.8m falling due after that. Offsetting these obligations, it had cash of €264.8m as well as receivables valued at €1.15b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €432.0m.

This deficit isn't so bad because Télévision Française 1 Société anonyme is worth €1.75b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, Télévision Française 1 Société anonyme boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that Télévision Française 1 Société anonyme has boosted its EBIT by 47%, thus reducing the spectre of future debt repayments. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Télévision Française 1 Société anonyme'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Télévision Française 1 Société anonyme 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, Télévision Française 1 Société anonyme produced sturdy free cash flow equating to 78% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing up

While Télévision Française 1 Société anonyme does have more liabilities than liquid assets, it also has net cash of €36.3m. And it impressed us with its EBIT growth of 47% over the last year. So is Télévision Française 1 Société anonyme's debt a risk? It doesn't seem so to us. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Télévision Française 1 Société anonyme , 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.