BASSAC Société anonyme (EPA:BASS) Has A Pretty Healthy Balance Sheet

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.' 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. As with many other companies BASSAC Société anonyme (EPA:BASS) makes use of debt. But is this debt a concern to shareholders?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

See our latest analysis for BASSAC Société anonyme

What Is BASSAC Société anonyme's Net Debt?

As you can see below, BASSAC Société anonyme had €260.4m of debt at December 2020, down from €300.0m a year prior. But it also has €309.0m in cash to offset that, meaning it has €48.6m net cash.

How Healthy Is BASSAC Société anonyme's Balance Sheet?

We can see from the most recent balance sheet that BASSAC Société anonyme had liabilities of €499.1m falling due within a year, and liabilities of €192.4m due beyond that. Offsetting these obligations, it had cash of €309.0m as well as receivables valued at €184.5m due within 12 months. So it has liabilities totalling €197.9m more than its cash and near-term receivables, combined.

BASSAC Société anonyme has a market capitalization of €898.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. While it does have liabilities worth noting, BASSAC Société anonyme also has more cash than debt, so we're pretty confident it can manage its debt safely.

While BASSAC Société anonyme doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. 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 BASSAC Société anonyme'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. BASSAC Société anonyme 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. During the last three years, BASSAC Société anonyme generated free cash flow amounting to a very robust 81% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.

Summing up

Although BASSAC Société anonyme's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €48.6m. And it impressed us with free cash flow of €145m, being 81% of its EBIT. So is BASSAC Société anonyme's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with BASSAC Société anonyme .

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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