Warren Buffett famously said, 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, La Société Industrielle et Financière de l'Artois (EPA:ARTO) does carry debt. But the real question is whether this debt is making the company risky.
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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.
How Much Debt Does La Société Industrielle et Financière de l'Artois Carry?
The image below, which you can click on for greater detail, shows that at June 2019 La Société Industrielle et Financière de l'Artois had debt of €80.6m, up from €60.3m in one year. But on the other hand it also has €647.1m in cash, leading to a €566.6m net cash position.
A Look At La Société Industrielle et Financière de l'Artois's Liabilities
We can see from the most recent balance sheet that La Société Industrielle et Financière de l'Artois had liabilities of €132.3m falling due within a year, and liabilities of €11.3m due beyond that. Offsetting this, it had €647.1m in cash and €39.2m in receivables that were due within 12 months. So it actually has €542.6m more liquid assets than total liabilities.
This surplus strongly suggests that La Société Industrielle et Financière de l'Artois has a rock-solid balance sheet (and the debt is of no concern whatsoever). On this view, it seems its balance sheet is as strong as a black-belt karate master. Simply put, the fact that La Société Industrielle et Financière de l'Artois has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is La Société Industrielle et Financière de l'Artois's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.
Over 12 months, La Société Industrielle et Financière de l'Artois made a loss at the EBIT level, and saw its revenue drop to €156m, which is a fall of 5.6%. That's not what we would hope to see.
So How Risky Is La Société Industrielle et Financière de l'Artois?
Although La Société Industrielle et Financière de l'Artois had negative earnings before interest and tax (EBIT) over the last twelve months, it made a statutory profit of €12m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. For riskier companies like La Société Industrielle et Financière de l'Artois I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.
Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.
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