Health Check: How Prudently Does Euromedis Groupe (EPA:ALEMG) Use Debt?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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. As with many other companies Euromedis Groupe (EPA:ALEMG) makes use of debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. 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 Euromedis Groupe

What Is Euromedis Groupe's Net Debt?

The image below, which you can click on for greater detail, shows that Euromedis Groupe had debt of €13.8m at the end of June 2022, a reduction from €16.6m over a year. But it also has €30.1m in cash to offset that, meaning it has €16.3m net cash.

How Healthy Is Euromedis Groupe's Balance Sheet?

According to the last reported balance sheet, Euromedis Groupe had liabilities of €12.4m due within 12 months, and liabilities of €17.3m due beyond 12 months. On the other hand, it had cash of €30.1m and €15.3m worth of receivables due within a year. So it actually has €15.7m more liquid assets than total liabilities.

This luscious liquidity implies that Euromedis Groupe's balance sheet is sturdy like a giant sequoia tree. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Euromedis Groupe has more cash than debt is arguably a good indication that it can manage its debt safely. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Euromedis Groupe 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.

Over 12 months, Euromedis Groupe made a loss at the EBIT level, and saw its revenue drop to €69m, which is a fall of 66%. That makes us nervous, to say the least.

So How Risky Is Euromedis Groupe?

Although Euromedis Groupe had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of €15m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. There's no doubt the next few years will be crucial to how the business matures. 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. For instance, we've identified 2 warning signs for Euromedis Groupe that you should be aware of.

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.