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

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. As with many other companies Euromedis Groupe (EPA:ALEMG) makes use of debt. But is this debt a concern to shareholders?

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Euromedis Groupe

What Is Euromedis Groupe's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Euromedis Groupe had €11.8m of debt in June 2023, down from €13.8m, one year before. However, its balance sheet shows it holds €22.2m in cash, so it actually has €10.4m net cash.

How Strong Is Euromedis Groupe's Balance Sheet?

We can see from the most recent balance sheet that Euromedis Groupe had liabilities of €9.71m falling due within a year, and liabilities of €15.9m due beyond that. On the other hand, it had cash of €22.2m and €12.2m worth of receivables due within a year. So it actually has €8.76m more liquid assets than total liabilities.

This surplus liquidity suggests that Euromedis Groupe's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Euromedis Groupe boasts net cash, so it's fair to say it does not have a heavy debt load! 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 Euromedis Groupe'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 Euromedis Groupe had a loss before interest and tax, and actually shrunk its revenue by 29%, to €50m. To be frank that doesn't bode well.

So How Risky Is Euromedis Groupe?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And we do note that Euromedis Groupe had an earnings before interest and tax (EBIT) loss, over the last year. And over the same period it saw negative free cash outflow of €5.2m and booked a €5.5m accounting loss. Given it only has net cash of €10.4m, the company may need to raise more capital if it doesn't reach break-even soon. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. 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. Be aware that Euromedis Groupe is showing 1 warning sign in our investment analysis , you should know about...

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.