Does Bénéteau (EPA:BEN) 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. Importantly, Bénéteau S.A. (EPA:BEN) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. 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 Bénéteau

How Much Debt Does Bénéteau Carry?

You can click the graphic below for the historical numbers, but it shows that Bénéteau had €346.3m of debt in December 2020, down from €431.5m, one year before. On the flip side, it has €315.4m in cash leading to net debt of about €30.9m.

A Look At Bénéteau's Liabilities

According to the last reported balance sheet, Bénéteau had liabilities of €662.7m due within 12 months, and liabilities of €79.6m due beyond 12 months. Offsetting these obligations, it had cash of €315.4m as well as receivables valued at €195.9m due within 12 months. So it has liabilities totalling €231.0m more than its cash and near-term receivables, combined.

Bénéteau has a market capitalization of €1.09b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. 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 Bénéteau'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.

In the last year Bénéteau had a loss before interest and tax, and actually shrunk its revenue by 25%, to €1.0b. That makes us nervous, to say the least.

Caveat Emptor

While Bénéteau's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. To be specific the EBIT loss came in at €6.0m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of €61m into a profit. In the meantime, we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Bénéteau , and understanding them should be part of your investment process.

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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