Is Dassault Aviation société anonyme (EPA:AM) Using Too Much Debt?

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.' 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. We note that Dassault Aviation société anonyme (EPA:AM) does have debt on its balance sheet. But is this debt a concern to shareholders?

We've discovered 1 warning sign about Dassault Aviation société anonyme. View them for free.

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Dassault Aviation société anonyme's Debt?

The image below, which you can click on for greater detail, shows that Dassault Aviation société anonyme had debt of €51.8m at the end of December 2024, a reduction from €77.9m over a year. However, it does have €8.49b in cash offsetting this, leading to net cash of €8.43b.

A Look At Dassault Aviation société anonyme's Liabilities

We can see from the most recent balance sheet that Dassault Aviation société anonyme had liabilities of €22.6b falling due within a year, and liabilities of €184.0m due beyond that. On the other hand, it had cash of €8.49b and €1.89b worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €12.4b.

Dassault Aviation société anonyme has a very large market capitalization of €25.3b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. While it does have liabilities worth noting, Dassault Aviation société anonyme also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Dassault Aviation société anonyme

On top of that, Dassault Aviation société anonyme grew its EBIT by 57% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Dassault Aviation société anonyme 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, a company can only pay off debt with cold hard cash, not accounting profits. While Dassault Aviation société anonyme 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. Happily for any shareholders, Dassault Aviation société anonyme 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.

Summing Up

While Dassault Aviation société anonyme does have more liabilities than liquid assets, it also has net cash of €8.43b. The cherry on top was that in converted 371% of that EBIT to free cash flow, bringing in €1.5b. So is Dassault Aviation société anonyme's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for Dassault Aviation société anonyme you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.