Does Robertet (EPA:RBT) Have A Healthy Balance Sheet?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Robertet SA (EPA:RBT) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

Why Does Debt Bring Risk?

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. If things get really bad, the lenders can take control of the business. 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, 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.

View our latest analysis for Robertet

What Is Robertet's Debt?

As you can see below, at the end of December 2021, Robertet had €98.1m of debt, up from €74.3m a year ago. Click the image for more detail. But it also has €190.0m in cash to offset that, meaning it has €91.9m net cash.

A Look At Robertet's Liabilities

The latest balance sheet data shows that Robertet had liabilities of €158.1m due within a year, and liabilities of €78.1m falling due after that. Offsetting this, it had €190.0m in cash and €145.3m in receivables that were due within 12 months. So it can boast €99.1m more liquid assets than total liabilities.

This surplus suggests that Robertet has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Robertet boasts net cash, so it's fair to say it does not have a heavy debt load!

On top of that, Robertet grew its EBIT by 32% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Robertet'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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Robertet 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. Over the last three years, Robertet recorded free cash flow worth a fulsome 83% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing up

While it is always sensible to investigate a company's debt, in this case Robertet has €91.9m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of €64m, being 83% of its EBIT. So we don't think Robertet's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Robertet, 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.