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

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.' 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. 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?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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?

You can click the graphic below for the historical numbers, but it shows that Télévision Française 1 Société anonyme had €177.0m of debt in March 2022, down from €194.6m, one year before. However, its balance sheet shows it holds €556.4m in cash, so it actually has €379.4m 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 €1.75b due within 12 months and liabilities of €252.4m due beyond that. Offsetting this, it had €556.4m in cash and €1.18b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €267.9m.

Of course, Télévision Française 1 Société anonyme has a market capitalization of €1.60b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Télévision Française 1 Société anonyme also has more cash than debt, so we're pretty confident it can manage its debt safely.

In addition to that, we're happy to report that Télévision Française 1 Société anonyme has boosted its EBIT by 61%, 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. 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 97% 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

While Télévision Française 1 Société anonyme does have more liabilities than liquid assets, it also has net cash of €379.4m. And it impressed us with free cash flow of €437m, being 97% of its EBIT. So we don't think Télévision Française 1 Société anonyme's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Télévision Française 1 Société anonyme , and understanding them should be part of your investment process.

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.