Groupe CRIT (EPA:CEN) Has A Rock Solid Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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 note that Groupe CRIT SA (EPA:CEN) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Groupe CRIT

What Is Groupe CRIT's Net Debt?

As you can see below, Groupe CRIT had €33.7m of debt, at December 2021, which is about the same as the year before. You can click the chart for greater detail. However, it does have €405.6m in cash offsetting this, leading to net cash of €371.9m.

A Look At Groupe CRIT's Liabilities

According to the last reported balance sheet, Groupe CRIT had liabilities of €488.4m due within 12 months, and liabilities of €104.6m due beyond 12 months. On the other hand, it had cash of €405.6m and €463.2m worth of receivables due within a year. So it can boast €275.8m more liquid assets than total liabilities.

This surplus strongly suggests that Groupe CRIT has a rock-solid balance sheet (and the debt is of no concern whatsoever). With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Simply put, the fact that Groupe CRIT has more cash than debt is arguably a good indication that it can manage its debt safely.

Even more impressive was the fact that Groupe CRIT grew its EBIT by 135% over twelve months. That boost will make it even easier to pay down debt going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Groupe CRIT 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 Groupe CRIT 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, Groupe CRIT actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing up

While we empathize with investors who find debt concerning, you should keep in mind that Groupe CRIT has net cash of €371.9m, as well as more liquid assets than liabilities. The cherry on top was that in converted 173% of that EBIT to free cash flow, bringing in €117m. At the end of the day we're not concerned about Groupe CRIT's debt. 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 Groupe CRIT'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.

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.