These 4 measures indicate that the BIC Company (EPA:BB) uses debt safely

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We can see that Company BIC SA (EPA:BB) uses debt in its business. But the more important question is: what risk does this debt create?

When is debt a problem?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth, without any negative consequences. When we look at debt levels, we first consider cash and debt levels, together.

Discover our latest analysis for Société BIC

What is BIC Company’s debt?

You can click on the graph below for historical figures, but it shows that in June 2022 Société BIC had 90.6 million euros in debt, an increase from 83.3 million euros, over a year. However, he has €320.5m in cash which offsets this, leading to a net cash of €229.9m.

ENXTPA: BB Debt to Equity History August 20, 2022

How strong is Société BIC’s balance sheet?

Zooming in on the latest balance sheet data, we can see that Société BIC had liabilities of €751.2m due within 12 months and liabilities of €185.7m due beyond. In return, it had 320.5 million euros in cash and 577.2 million euros in receivables due within 12 months. It therefore has liabilities totaling 39.3 million euros more than its cash and short-term receivables, combined.

This state of affairs indicates that Société BIC’s balance sheet seems quite solid, with its total liabilities being roughly equal to its liquidities. It is therefore very unlikely that the 2.64 billion euro company will run out of cash, but it is still worth keeping an eye on the balance sheet. Despite significant liabilities, Société BIC has net cash, so it is fair to say that it is not heavily indebted!

The good news is that Société BIC increased its EBIT by 6.1% year-over-year, which should ease debt repayment concerns. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Société BIC’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, while the taxman may love accounting profits, lenders only accept cash. Although Société BIC has net cash on its balance sheet, it is always interesting to examine its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how quickly it is building ( or erodes) this treasury. balance. Over the past three years, Société BIC has produced strong free cash flow equivalent to 78% of its EBIT, which is what we expected. This free cash flow puts the company in a good position to repay its debt, should it arise.

Summary

We can understand that investors are worried about Société BIC’s liabilities, but we can be reassured by the fact that it has net cash of €229.9 million. And he impressed us with a free cash flow of 124 million euros, or 78% of his EBIT. Is Société BIC’s debt then a risk? This does not seem to us to be the case. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for Société BIC you should know.

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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