Tencent Music Entertainment Group (NYSE:TME) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. Importantly, Tencent Music Entertainment Group (NYSE:TME) does carry debt. But should shareholders be worried about its use of debt?

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. 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.

How Much Debt Does Tencent Music Entertainment Group Carry?

You can click the graphic below for the historical numbers, but it shows that Tencent Music Entertainment Group had CN¥3.56b of debt in June 2025, down from CN¥5.67b, one year before. However, it does have CN¥22.2b in cash offsetting this, leading to net cash of CN¥18.6b.

How Healthy Is Tencent Music Entertainment Group's Balance Sheet?

According to the last reported balance sheet, Tencent Music Entertainment Group had liabilities of CN¥16.5b due within 12 months, and liabilities of CN¥5.00b due beyond 12 months. Offsetting this, it had CN¥22.2b in cash and CN¥3.73b in receivables that were due within 12 months. So it can boast CN¥4.43b more liquid assets than total liabilities.

This state of affairs indicates that Tencent Music Entertainment Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the CN¥286.9b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Tencent Music Entertainment Group boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Tencent Music Entertainment Group

In addition to that, we're happy to report that Tencent Music Entertainment Group has boosted its EBIT by 83%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Tencent Music Entertainment Group 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While Tencent Music Entertainment Group 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. Happily for any shareholders, Tencent Music Entertainment Group actually produced more free cash flow than EBIT over the last three years. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Tencent Music Entertainment Group has net cash of CN¥18.6b, as well as more liquid assets than liabilities. And it impressed us with free cash flow of CN¥7.8b, being 102% of its EBIT. So is Tencent Music Entertainment Group's debt a risk? It doesn't seem so to us. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Tencent Music Entertainment Group's earnings per share history for free.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.