We Think Publicis Groupe (EPA:PUB) Can Stay On Top Of Its Debt

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Publicis Groupe S.A. (EPA:PUB) makes use of debt. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Publicis Groupe

How Much Debt Does Publicis Groupe Carry?

You can click the graphic below for the historical numbers, but it shows that Publicis Groupe had €2.72b of debt in December 2024, down from €3.35b, one year before. But on the other hand it also has €3.64b in cash, leading to a €929.0m net cash position.

How Strong Is Publicis Groupe's Balance Sheet?

We can see from the most recent balance sheet that Publicis Groupe had liabilities of €24.1b falling due within a year, and liabilities of €4.70b due beyond that. On the other hand, it had cash of €3.64b and €17.8b worth of receivables due within a year. So its liabilities total €7.36b more than the combination of its cash and short-term receivables.

Publicis Groupe has a very large market capitalization of €25.8b, so it could very likely raise cash to ameliorate 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 9.7% 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 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're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Publicis Groupe 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, Publicis Groupe recorded free cash flow worth a fulsome 92% 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 Publicis Groupe does have more liabilities than liquid assets, it also has net cash of €929.0m. The cherry on top was that in converted 92% of that EBIT to free cash flow, bringing in €2.1b. 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. Be aware that Publicis Groupe is showing 1 warning sign in our investment analysis , you should know about...

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.