These 4 Measures Indicate That bioMérieux (EPA:BIM) Is Using Debt Reasonably Well

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 should shareholders be worried about its use of debt?

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What Risk Does Debt Bring?

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. If things get really bad, the lenders can take control of the business. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does bioMérieux Carry?

The image below, which you can click on for greater detail, shows that bioMérieux had debt of €318.7m at the end of December 2024, a reduction from €370.2m over a year. However, its balance sheet shows it holds €449.8m in cash, so it actually has €131.1m net cash.

How Healthy Is bioMérieux's Balance Sheet?

We can see from the most recent balance sheet that bioMérieux had liabilities of €1.13b falling due within a year, and liabilities of €424.1m due beyond that. On the other hand, it had cash of €449.8m and €938.7m worth of receivables due within a year. So its liabilities total €170.5m 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 while it's hard to imagine that the €13.8b company is struggling for cash, we still think it's worth monitoring its balance sheet. Despite its noteworthy liabilities, bioMérieux boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for bioMérieux

Also good is that bioMérieux grew its EBIT at 12% over the last year, further increasing its ability to manage debt. 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 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. 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. In the last three years, bioMérieux's free cash flow amounted to 34% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

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 €131.1m. On top of that, it increased its EBIT by 12% in the last twelve months. 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.

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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.