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

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 Télévision Française 1 Société anonyme (EPA:TFI) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Télévision Française 1 Société anonyme

What Is Télévision Française 1 Société anonyme's Debt?

You can click the graphic below for the historical numbers, but it shows that Télévision Française 1 Société anonyme had €228.5m of debt in September 2021, down from €280.4m, one year before. But on the other hand it also has €264.8m in cash, leading to a €36.3m net cash position.

How Strong Is Télévision Française 1 Société anonyme's Balance Sheet?

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. On the other hand, it had cash of €264.8m and €1.15b worth of receivables due within a year. So its liabilities total €432.0m more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Télévision Française 1 Société anonyme is worth €1.77b, 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 ultimately the future profitability of the business will decide if Télévision Française 1 Société anonyme 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, a company can only pay off debt with cold hard cash, not accounting profits. While Télévision Française 1 Société anonyme 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. Over the most recent three years, Télévision Française 1 Société anonyme recorded free cash flow worth 78% of its EBIT, which is around normal, given free cash flow excludes interest and tax. 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 we liked the look of last year's 47% year-on-year EBIT growth. 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. 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.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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