Does Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) does use debt in its business. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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. If things get really bad, the lenders can take control of the business. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco

What Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's Debt?

You can click the graphic below for the historical numbers, but it shows that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had €253.4m of debt in March 2021, down from €267.5m, one year before. However, it also had €100.7m in cash, and so its net debt is €152.7m.

How Strong Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's Balance Sheet?

We can see from the most recent balance sheet that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had liabilities of €346.7m falling due within a year, and liabilities of €370.2m due beyond that. On the other hand, it had cash of €100.7m and €36.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €580.2m.

This deficit isn't so bad because Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is worth €1.80b, and thus could probably raise enough capital to shore up 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. There's no doubt that we learn most about debt from the balance sheet. But it is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had a loss before interest and tax, and actually shrunk its revenue by 46%, to €337m. To be frank that doesn't bode well.

Caveat Emptor

Not only did Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). Indeed, it lost €78m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €53m of cash over the last year. So to be blunt we think it is risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 1 warning sign for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco that you should be aware of before investing here.

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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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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