Is Lalique Group (VTX:LLQ) A Risky Investment?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. We can see that Lalique Group SA (VTX:LLQ) does use debt in its business. But the more important question is: how much risk is that debt creating?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Lalique Group

What Is Lalique Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Lalique Group had €28.3m of debt in June 2022, down from €37.9m, one year before. But it also has €37.3m in cash to offset that, meaning it has €9.03m net cash.

A Look At Lalique Group's Liabilities

Zooming in on the latest balance sheet data, we can see that Lalique Group had liabilities of €81.9m due within 12 months and liabilities of €72.9m due beyond that. Offsetting this, it had €37.3m in cash and €31.2m in receivables that were due within 12 months. So it has liabilities totalling €86.3m more than its cash and near-term receivables, combined.

Lalique Group has a market capitalization of €199.2m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, Lalique Group also has more cash than debt, so we're pretty confident it can manage its debt safely.

Even more impressive was the fact that Lalique Group grew its EBIT by 210% over twelve months. That boost will make it even easier to pay down debt going forward. 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 Lalique Group can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Lalique 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. Over the last two years, Lalique Group actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

Although Lalique Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €9.03m. And it impressed us with free cash flow of €15m, being 206% of its EBIT. So is Lalique 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 Lalique Group's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.