Warren Buffett famously stated, ‘Volatility is far from synonymous with risk.’ When we consider about how risky a company is, we always like to view at its utilize of debt, since debt overload can lead to ruin. We can see that Telefônica Brasil S.A. (BVMF:VIVT3) does utilize debt in its business. But the real question is whether this debt is building the company risky.
When Is Debt A Problem?
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. Part and parcel of capitalism is the process of ‘creative destruction’ where failed businesses are mercilessly liquidated by their bankers. 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. The first step when considering a company’s debt levels is to consider its cash and debt toobtainher.
What Is Telefônica Brasil’s Net Debt?
As you can see below, at the finish of June 2025, Telefônica Brasil had R$5.79b of debt, up from R$5.26b a year ago. Click the image for more detail. But it also has R$9.45b in cash to offset that, meaning it has R$3.66b net cash.
A Look At Telefônica Brasil’s Liabilities
The latest balance sheet data displays that Telefônica Brasil had liabilities of R$26.8b due within a year, and liabilities of R$31.5b falling due after that. Offsetting this, it had R$9.45b in cash and R$12.3b in receivables that were due within 12 months. So its liabilities total R$36.6b more than the combination of its cash and short-term receivables.
This deficit isn’t so bad becautilize Telefônica Brasil is worth a massive R$109.4b, and thus could probably raise enough capital to shore up its balance sheet, if the necessary arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Telefônica Brasil boasts net cash, so it’s fair to state it does not have a heavy debt load!
See our latest analysis for Telefônica Brasil
Telefônica Brasil grew its EBIT by 5.5% in the last year. That’s far from incredible but it is a good thing, when it comes to paying off debt. There’s no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Telefônica Brasil’s ability to maintain a healthy balance sheet going forward. So if you’re focutilized on the future you can check out this free report displaying analyst profit forecasts.
But our final consideration is also important, becautilize a company cannot pay debt with paper profits; it necessarys cold hard cash. Telefônica Brasil may have net cash on the balance sheet, but it is still interesting to view at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, becautilize that will influence both its necessary for, and its capacity to manage debt. Happily for any shareholders, Telefônica Brasil actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.
Summing Up
Although Telefônica Brasil’s balance sheet isn’t particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of R$3.66b. And it impressed us with free cash flow of R$10b, being 120% of its EBIT. So we are not troubled with Telefônica Brasil’s debt utilize. 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. For instance, we’ve identified 1 warning sign for Telefônica Brasil that you should be aware of.
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 utilizing an unbiased methodology and our articles are not intfinished to be financial advice. It does not constitute a recommfinishation to purchase or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focutilized 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.
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