Is bioMérieux (EPA:BIM) A Risky Investment?

Warren Buffett famously said, '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. As with many other companies bioMérieux S.A. (EPA:BIM) makes use of debt. But should shareholders be worried about its use of debt?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

See our latest analysis for bioMérieux

What Is bioMérieux's Debt?

As you can see below, bioMérieux had €395.4m of debt at June 2021, down from €658.8m a year prior. But on the other hand it also has €493.2m in cash, leading to a €97.8m net cash position.

How Healthy Is bioMérieux's Balance Sheet?

According to the last reported balance sheet, bioMérieux had liabilities of €857.9m due within 12 months, and liabilities of €550.3m due beyond 12 months. On the other hand, it had cash of €493.2m and €694.5m worth of receivables due within a year. So its liabilities total €220.5m 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 €11.5b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, bioMérieux boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, bioMérieux grew its EBIT by 68% over the last twelve months, and that growth will make it easier to handle its debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine bioMérieux's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While bioMérieux 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. In the last three years, bioMérieux's free cash flow amounted to 47% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing up

While it is always sensible to look at a company's total liabilities, it is very reassuring that bioMérieux has €97.8m in net cash. And we liked the look of last year's 68% year-on-year EBIT growth. So we don't think bioMérieux's use of debt is risky. 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.

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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