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

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?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt 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 June 2024 bioMérieux had €393.6m of debt, an increase on €367.7m, over one year. On the flip side, it has €272.2m in cash leading to net debt of about €121.4m.

A Look At bioMérieux's Liabilities

The latest balance sheet data shows that bioMérieux had liabilities of €1.00b due within a year, and liabilities of €437.8m falling due after that. Offsetting this, it had €272.2m in cash and €928.0m in receivables that were due within 12 months. So it has liabilities totalling €238.8m more than its cash and near-term receivables, combined.

Having regard to bioMérieux's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the €12.6b company is struggling for cash, we still think it's worth monitoring its balance sheet. But either way, bioMérieux has virtually no net debt, so it's fair to say it does not have a heavy debt load!

In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). Thus we consider debt relative to earnings both with and without depreciation and amortization expenses.

bioMérieux's net debt is only 0.14 times its EBITDA. And its EBIT covers its interest expense a whopping 217 times over. So we're pretty relaxed about its super-conservative use of debt. The good news is that bioMérieux has increased its EBIT by 4.4% over twelve months, which should ease any concerns about debt repayment. There's no doubt that we learn most about debt from the balance sheet. 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. So we always check how much of that EBIT is translated into free cash flow. In the last three years, bioMérieux's free cash flow amounted to 39% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Our View

bioMérieux's interest cover suggests it can handle its debt as easily as Cristiano Ronaldo could score a goal against an under 14's goalkeeper. And that's just the beginning of the good news since its net debt to EBITDA is also very heartening. We would also note that Medical Equipment industry companies like bioMérieux commonly do use debt without problems. When we consider the range of factors above, it looks like bioMérieux is pretty sensible with its use of debt. That means they are taking on a bit more risk, in the hope of boosting shareholder returns. Over time, share prices tend to follow earnings per share, so if you're interested in bioMérieux, you may well want to click here to check an interactive graph of its earnings per share history.

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.