Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) Has A Rock Solid Balance Sheet

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.' 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 Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (BUSE:MTELEKOM) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt Dangerous?

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 examine debt levels, we first consider both cash and debt levels, together.

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

The chart below, which you can click on for greater detail, shows that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság had Ft255.1b in debt in September 2025; about the same as the year before. However, because it has a cash reserve of Ft106.1b, its net debt is less, at about Ft148.9b.

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

According to the last reported balance sheet, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság had liabilities of Ft250.7b due within 12 months, and liabilities of Ft380.9b due beyond 12 months. Offsetting this, it had Ft106.1b in cash and Ft232.7b in receivables that were due within 12 months. So its liabilities total Ft292.8b more than the combination of its cash and short-term receivables.

Since publicly traded Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság shares are worth a total of Ft1.57t, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time.

Check out 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 0.41 times its EBITDA. And its EBIT covers its interest expense a whopping 21.9 times over. So we're pretty relaxed about its super-conservative use of debt. Also positive, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság grew its EBIT by 27% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság 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. So it's worth checking how much of that EBIT is backed by free cash flow. Over the last three years, Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság recorded free cash flow worth a fulsome 86% 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! Considering this range of factors, it seems to us that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság is quite prudent with its debt, and the risks seem well managed. So the balance sheet looks pretty healthy, to us. 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. To that end, you should learn about the 2 warning signs we've spotted with Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (including 1 which is a bit concerning) .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.