Is Publicis Groupe (EPA:PUB) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Publicis Groupe S.A. (EPA:PUB) does use debt in its business. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Publicis Groupe

What Is Publicis Groupe's Net Debt?

As you can see below, Publicis Groupe had €3.19b of debt at December 2023, down from €4.00b a year prior. But on the other hand it also has €4.25b in cash, leading to a €1.06b net cash position.

How Healthy Is Publicis Groupe's Balance Sheet?

According to the last reported balance sheet, Publicis Groupe had liabilities of €21.8b due within 12 months, and liabilities of €5.14b due beyond 12 months. Offsetting this, it had €4.25b in cash and €16.0b in receivables that were due within 12 months. So its liabilities total €6.76b more than the combination of its cash and short-term receivables.

This deficit isn't so bad because Publicis Groupe is worth a massive €24.8b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. Despite its noteworthy liabilities, Publicis Groupe boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Publicis Groupe has increased its EBIT by 7.0% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Publicis Groupe'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, while the tax-man may adore accounting profits, lenders only accept cold hard cash. Publicis Groupe 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. Over the last three years, Publicis Groupe recorded free cash flow worth a fulsome 97% of its EBIT, which is stronger than we'd usually expect. That puts it in a very strong position to pay down debt.

Summing Up

Although Publicis Groupe's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €1.06b. The cherry on top was that in converted 97% of that EBIT to free cash flow, bringing in €1.9b. So we don't think Publicis Groupe's use of debt is risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 2 warning signs for Publicis Groupe that you should be aware of before investing here.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.