Does bioMérieux (EPA:BIM) Have A 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. Importantly, bioMérieux S.A. (EPA:BIM) does carry debt. But the more important question is: how much risk is that debt creating?

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. 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. 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.

Check out our latest analysis for bioMérieux

How Much Debt Does bioMérieux Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 bioMérieux had €385.5m of debt, an increase on €340.1m, over one year. However, its balance sheet shows it holds €552.6m in cash, so it actually has €167.1m net cash.

How Strong Is bioMérieux's Balance Sheet?

The latest balance sheet data shows that bioMérieux had liabilities of €1.13b due within a year, and liabilities of €412.6m falling due after that. On the other hand, it had cash of €552.6m and €856.7m worth of receivables due within a year. So its liabilities total €134.4m more than the combination of its cash and short-term receivables.

Having regard to bioMérieux's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the €11.2b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, bioMérieux also has more cash than debt, so we're pretty confident it can manage its debt safely.

In fact bioMérieux's saving grace is its low debt levels, because its EBIT has tanked 25% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if bioMérieux 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.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. bioMérieux may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. During the last three years, bioMérieux produced sturdy free cash flow equating to 50% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about bioMérieux's liabilities, but we can be reassured by the fact it has has net cash of €167.1m. So we don't have any problem with bioMérieux's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of bioMérieux's earnings per share history for free.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.