We Think Télévision Française 1 Société anonyme (EPA:TFI) Can Manage Its Debt With Ease

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Télévision Française 1 Société anonyme (EPA:TFI) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Télévision Française 1 Société anonyme

What Is Télévision Française 1 Société anonyme's Net Debt?

As you can see below, Télévision Française 1 Société anonyme had €205.2m of debt at June 2021, down from €270.9m a year prior. But it also has €239.6m in cash to offset that, meaning it has €34.4m net cash.

A Look At Télévision Française 1 Société anonyme's Liabilities

Zooming in on the latest balance sheet data, we can see that Télévision Française 1 Société anonyme had liabilities of €1.64b due within 12 months and liabilities of €277.9m due beyond that. On the other hand, it had cash of €239.6m and €1.26b worth of receivables due within a year. So it has liabilities totalling €418.1m more than its cash and near-term receivables, combined.

While this might seem like a lot, it is not so bad since Télévision Française 1 Société anonyme has a market capitalization of €1.76b, and so it could probably strengthen its balance sheet by raising capital if it needed to. 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 83%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. 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'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. 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. Over the last three years, Télévision Française 1 Société anonyme recorded free cash flow worth a fulsome 86% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing up

Although Télévision Française 1 Société anonyme's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €34.4m. The cherry on top was that in converted 86% of that EBIT to free cash flow, bringing in €175m. So we don't think Télévision Française 1 Société anonyme's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Télévision Française 1 Société anonyme you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.
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