Here's Why Gérard Perrier Industrie (EPA:PERR) Can Manage Its Debt Responsibly

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Gérard Perrier Industrie S.A. (EPA:PERR) does use debt in its business. But the real question is whether this debt is making the company risky.

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When Is Debt A Problem?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first step when considering a company's debt levels is to consider its cash and debt together.

What Is Gérard Perrier Industrie's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 Gérard Perrier Industrie had debt of €31.7m, up from €25.9m in one year. However, its balance sheet shows it holds €79.2m in cash, so it actually has €47.5m net cash.

How Healthy Is Gérard Perrier Industrie's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Gérard Perrier Industrie had liabilities of €115.6m due within 12 months and liabilities of €44.7m due beyond that. On the other hand, it had cash of €79.2m and €109.1m worth of receivables due within a year. So it can boast €28.0m more liquid assets than total liabilities.

This surplus suggests that Gérard Perrier Industrie has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Gérard Perrier Industrie boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Gérard Perrier Industrie

Fortunately, Gérard Perrier Industrie grew its EBIT by 5.3% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Gérard Perrier Industrie's ability to maintain a healthy balance sheet going forward. 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 Gérard Perrier Industrie 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 most recent three years, Gérard Perrier Industrie recorded free cash flow worth 52% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

While it is always sensible to investigate a company's debt, in this case Gérard Perrier Industrie has €47.5m in net cash and a decent-looking balance sheet. So we don't think Gérard Perrier Industrie's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Gérard Perrier Industrie, you may well want to click here to check an interactive graph of its earnings per share history.

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.