Is Société BIC (EPA:BB) 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.' 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. As with many other companies Société BIC SA (EPA:BB) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for Société BIC

How Much Debt Does Société BIC Carry?

The image below, which you can click on for greater detail, shows that at December 2022 Société BIC had debt of €119.3m, up from €68.8m in one year. However, it does have €416.3m in cash offsetting this, leading to net cash of €297.0m.

How Healthy Is Société BIC's Balance Sheet?

We can see from the most recent balance sheet that Société BIC had liabilities of €605.1m falling due within a year, and liabilities of €202.1m due beyond that. Offsetting this, it had €416.3m in cash and €414.7m in receivables that were due within 12 months. So it can boast €23.8m more liquid assets than total liabilities.

Having regard to Société BIC's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €2.70b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, Société BIC boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that Société BIC grew its EBIT at 10% over the last year, further increasing its ability to manage 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 Société BIC 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 Société BIC 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 three years, Société BIC recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

While it is always sensible to investigate a company's debt, in this case Société BIC has €297.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of €204m, being 85% of its EBIT. So we don't think Société BIC's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Société BIC you should be aware of.

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.

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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.