Does Miliboo Société anonyme (EPA:ALMLB) Have A Healthy 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. As with many other companies Miliboo Société anonyme (EPA:ALMLB) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Miliboo Société anonyme

How Much Debt Does Miliboo Société anonyme Carry?

You can click the graphic below for the historical numbers, but it shows that as of April 2021 Miliboo Société anonyme had €11.6m of debt, an increase on €6.10m, over one year. However, its balance sheet shows it holds €12.9m in cash, so it actually has €1.29m net cash.

How Healthy Is Miliboo Société anonyme's Balance Sheet?

According to the last reported balance sheet, Miliboo Société anonyme had liabilities of €12.4m due within 12 months, and liabilities of €10.9m due beyond 12 months. Offsetting this, it had €12.9m in cash and €2.10m in receivables that were due within 12 months. So it has liabilities totalling €8.40m more than its cash and near-term receivables, combined.

Miliboo Société anonyme has a market capitalization of €29.9m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. While it does have liabilities worth noting, Miliboo Société anonyme also has more cash than debt, so we're pretty confident it can manage its debt safely.

Although Miliboo Société anonyme made a loss at the EBIT level, last year, it was also good to see that it generated €2.4m in EBIT over the last twelve months. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Miliboo Société anonyme 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. While Miliboo 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, Miliboo Société anonyme actually produced more free cash flow than EBIT over the last year. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing up

While Miliboo Société anonyme does have more liabilities than liquid assets, it also has net cash of €1.29m. The cherry on top was that in converted 203% of that EBIT to free cash flow, bringing in €4.9m. So is Miliboo Société anonyme's debt a risk? It doesn't seem so to us. 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. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Miliboo Société anonyme you should know about.

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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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.
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