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

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the 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. As with many other companies Télévision Française 1 Société anonyme (EPA:TFI) makes use of debt. But is this debt a concern to shareholders?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

Check out 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 €149.4m of debt at June 2022, down from €205.2m a year prior. But on the other hand it also has €394.6m in cash, leading to a €245.2m net cash position.

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

According to the last reported balance sheet, Télévision Française 1 Société anonyme had liabilities of €1.69b due within 12 months, and liabilities of €233.3m due beyond 12 months. On the other hand, it had cash of €394.6m and €1.17b worth of receivables due within a year. So its liabilities total €352.9m 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 €1.27b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. 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!

Another good sign is that Télévision Française 1 Société anonyme has been able to increase its EBIT by 22% in twelve months, making it easier to pay down debt. 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 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. 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 81% 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 €245.2m. And it impressed us with free cash flow of €332m, being 81% of its EBIT. So is Télévision Française 1 Société anonyme's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 1 warning sign for Télévision Française 1 Société anonyme you should be aware of.

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.