Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) Is Carrying A Fair Bit Of Debt

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.' 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, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) does carry debt. But the more important question is: how much risk is that debt creating?

What Risk Does Debt Bring?

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. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

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

How Much Debt Does Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco Carry?

The image below, which you can click on for greater detail, shows that at September 2020 Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had debt of €272.9m, up from €246.1m in one year. On the flip side, it has €114.7m in cash leading to net debt of about €158.2m.

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

The latest balance sheet data shows that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had liabilities of €321.3m due within a year, and liabilities of €408.6m falling due after that. On the other hand, it had cash of €114.7m and €56.9m worth of receivables due within a year. So it has liabilities totalling €558.2m more than its cash and near-term receivables, combined.

This deficit isn't so bad because Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is worth €1.50b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

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 36%, to €380m. To be frank that doesn't bode well.

Caveat Emptor

While Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost €90m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €92m of cash over the last year. So in short it's a really risky stock. For riskier companies like Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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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