These 4 Measures Indicate That Thermador Groupe (EPA:THEP) Is Using Debt Reasonably Well

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. We can see that Thermador Groupe SA (EPA:THEP) does use debt in its business. But should shareholders be worried about its use of debt?

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. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for Thermador Groupe

What Is Thermador Groupe's Debt?

As you can see below, Thermador Groupe had €39.4m of debt at December 2020, down from €41.7m a year prior. But on the other hand it also has €40.3m in cash, leading to a €932.0k net cash position.

A Look At Thermador Groupe's Liabilities

According to the last reported balance sheet, Thermador Groupe had liabilities of €101.7m due within 12 months, and liabilities of €35.9m due beyond 12 months. On the other hand, it had cash of €40.3m and €83.7m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €13.6m.

This state of affairs indicates that Thermador Groupe's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So while it's hard to imagine that the €787.6m company is struggling for cash, we still think it's worth monitoring its balance sheet. While it does have liabilities worth noting, Thermador Groupe also has more cash than debt, so we're pretty confident it can manage its debt safely.

The good news is that Thermador Groupe has increased its EBIT by 7.5% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Thermador Groupe 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. Thermador Groupe may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Over the most recent three years, Thermador Groupe recorded free cash flow worth 53% 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

We could understand if investors are concerned about Thermador Groupe's liabilities, but we can be reassured by the fact it has has net cash of €932.0k. On top of that, it increased its EBIT by 7.5% in the last twelve months. So we don't think Thermador Groupe's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Thermador Groupe, you may well want to click here to check an interactive graph of its earnings per share history.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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