Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) Could Easily Take On More Debt

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. As with many other companies Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) makes use of debt. But is this debt a concern to shareholders?

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Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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 examine debt levels, we first consider both cash and debt levels, together.

What Is Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's Debt?

As you can see below, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság had Ft259.1b of debt at March 2025, down from Ft328.4b a year prior. However, it does have Ft96.2b in cash offsetting this, leading to net debt of about Ft162.9b.

How Strong Is Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság had liabilities of Ft234.8b due within 12 months and liabilities of Ft376.1b due beyond that. Offsetting this, it had Ft96.2b in cash and Ft221.1b in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by Ft293.6b.

Given Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has a market capitalization of Ft1.65t, it's hard to believe these liabilities pose much threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time.

View our latest analysis for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's net debt is only 0.49 times its EBITDA. And its EBIT easily covers its interest expense, being 16.2 times the size. So we're pretty relaxed about its super-conservative use of debt. In addition to that, we're happy to report that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság has boosted its EBIT by 41%, 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 Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. Over the last three years, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság recorded free cash flow worth a fulsome 84% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Our View

Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And the good news does not stop there, as its conversion of EBIT to free cash flow also supports that impression! Overall, we don't think Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság is taking any bad risks, as its debt load seems modest. So we're not worried about the use of a little leverage on the balance sheet. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 2 warning signs we've spotted with Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (including 1 which can't be ignored) .

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.

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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.