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

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We note that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View 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 Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had debt of €15.1m at the end of March 2024, a reduction from €98.3m over a year. However, it does have €69.7m in cash offsetting this, leading to net cash of €54.6m.

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

Zooming in on the latest balance sheet data, we can see that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had liabilities of €323.1m due within 12 months and liabilities of €211.2m due beyond that. On the other hand, it had cash of €69.7m and €63.3m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €401.3m.

Of course, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has a market capitalization of €2.48b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco boasts net cash, so it's fair to say it does not have a heavy debt load!

Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's EBIT was pretty flat over the last year, but that shouldn't be an issue given the it doesn't have a lot of debt. There's no doubt that we learn most about debt from the balance sheet. 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 if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco 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, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco 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 Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco does have more liabilities than liquid assets, it also has net cash of €54.6m. And it impressed us with free cash flow of €54m, being 109% of its EBIT. So we don't think Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 1 warning sign with Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco , and understanding them should be part of your investment process.

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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