Boiron (EPA:BOI) Has A Pretty Healthy Balance Sheet

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Boiron SA (EPA:BOI) makes use of debt. But is this debt a concern to shareholders?

When Is Debt A Problem?

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 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, 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 think about a company's use of debt, we first look at cash and debt together.

See our latest analysis for Boiron

How Much Debt Does Boiron Carry?

As you can see below, Boiron had €4.68m of debt at December 2020, down from €6.02m a year prior. However, its balance sheet shows it holds €234.7m in cash, so it actually has €230.0m net cash.

How Healthy Is Boiron's Balance Sheet?

According to the last reported balance sheet, Boiron had liabilities of €176.5m due within 12 months, and liabilities of €96.1m due beyond 12 months. Offsetting these obligations, it had cash of €234.7m as well as receivables valued at €97.5m due within 12 months. So it can boast €59.5m more liquid assets than total liabilities.

This short term liquidity is a sign that Boiron could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Boiron has more cash than debt is arguably a good indication that it can manage its debt safely.

In fact Boiron's saving grace is its low debt levels, because its EBIT has tanked 41% in the last twelve months. Falling earnings (if the trend continues) could eventually make even modest debt quite risky. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Boiron 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. Boiron 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. Looking at the most recent three years, Boiron recorded free cash flow of 40% of its EBIT, which is weaker than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing up

While it is always sensible to investigate a company's debt, in this case Boiron has €230.0m in net cash and a decent-looking balance sheet. So we are not troubled with Boiron's debt use. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Boiron you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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