Is bioMérieux (EPA:BIM) Using Too Much Debt?

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. We can see that bioMérieux S.A. (EPA:BIM) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

View our latest analysis for bioMérieux

What Is bioMérieux's Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 bioMérieux had €505.4m of debt, an increase on €340.1m, over one year. But on the other hand it also has €552.6m in cash, leading to a €47.2m net cash position.

A Look At bioMérieux's Liabilities

Zooming in on the latest balance sheet data, we can see that bioMérieux had liabilities of €1.13b due within 12 months and liabilities of €412.6m due beyond that. Offsetting this, it had €552.6m in cash and €926.9m in receivables that were due within 12 months. So it has liabilities totalling €64.2m more than its cash and near-term receivables, combined.

This state of affairs indicates that bioMérieux's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the €11.3b 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!

It is just as well that bioMérieux's load is not too heavy, because its EBIT was down 27% over the last year. When it comes to paying off debt, falling earnings are no more useful than sugary sodas are for your health. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if bioMérieux can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, while the tax-man may adore accounting profits, lenders only accept 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. During the last three years, bioMérieux produced sturdy free cash flow equating to 51% 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 €47.2m. So we are not troubled with bioMérieux's debt use. 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.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.