Does Empresa Nacional de Telecomunicaciones (SNSE:ENTEL) Have A Healthy Balance Sheet?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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. As with many other companies Empresa Nacional de Telecomunicaciones S.A. (SNSE:ENTEL) makes use of debt. But should shareholders be worried about its use of debt?

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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 common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Empresa Nacional de Telecomunicaciones's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Empresa Nacional de Telecomunicaciones had CL$1.69t of debt in September 2025, down from CL$2.09t, one year before. However, because it has a cash reserve of CL$239.9b, its net debt is less, at about CL$1.45t.

A Look At Empresa Nacional de Telecomunicaciones' Liabilities

The latest balance sheet data shows that Empresa Nacional de Telecomunicaciones had liabilities of CL$1.03t due within a year, and liabilities of CL$2.60t falling due after that. Offsetting this, it had CL$239.9b in cash and CL$662.6b in receivables that were due within 12 months. So its liabilities total CL$2.73t more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the CL$1.27t company, like a colossus towering over mere mortals. So we definitely think shareholders need to watch this one closely. At the end of the day, Empresa Nacional de Telecomunicaciones would probably need a major re-capitalization if its creditors were to demand repayment.

Check out our latest analysis for Empresa Nacional de Telecomunicaciones

We use two main ratios to inform us about debt levels relative to earnings. The first is net debt divided by earnings before interest, tax, depreciation, and amortization (EBITDA), while the second is how many times its earnings before interest and tax (EBIT) covers its interest expense (or its interest cover, for short). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.

Empresa Nacional de Telecomunicaciones's debt is 2.8 times its EBITDA, and its EBIT cover its interest expense 4.6 times over. This suggests that while the debt levels are significant, we'd stop short of calling them problematic. Empresa Nacional de Telecomunicaciones grew its EBIT by 9.3% 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 ultimately the future profitability of the business will decide if Empresa Nacional de Telecomunicaciones 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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. So the logical step is to look at the proportion of that EBIT that is matched by actual free cash flow. Happily for any shareholders, Empresa Nacional de Telecomunicaciones 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.

Our View

Neither Empresa Nacional de Telecomunicaciones's ability to handle its total liabilities nor its net debt to EBITDA gave us confidence in its ability to take on more debt. But its conversion of EBIT to free cash flow tells a very different story, and suggests some resilience. When we consider all the factors discussed, it seems to us that Empresa Nacional de Telecomunicaciones is taking some risks with its use of debt. So while that leverage does boost returns on equity, we wouldn't really want to see it increase from here. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 4 warning signs for Empresa Nacional de Telecomunicaciones (1 can't be ignored!) that you should be aware of before investing here.

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.