Does Société Industrielle et Financière de l'Artois (EPA:ARTO) Have A Healthy Balance Sheet?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Société Industrielle et Financière de l'Artois (EPA:ARTO) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. If things get really bad, the lenders can take control of the business. 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. 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 Société Industrielle et Financière de l'Artois

What Is Société Industrielle et Financière de l'Artois's Net Debt?

As you can see below, Société Industrielle et Financière de l'Artois had €37.4m of debt at December 2021, down from €95.1m a year prior. However, it does have €688.1m in cash offsetting this, leading to net cash of €650.7m.

A Look At Société Industrielle et Financière de l'Artois' Liabilities

Zooming in on the latest balance sheet data, we can see that Société Industrielle et Financière de l'Artois had liabilities of €88.8m due within 12 months and liabilities of €7.60m due beyond that. On the other hand, it had cash of €688.1m and €32.6m worth of receivables due within a year. So it actually has €624.3m more liquid assets than total liabilities.

This luscious liquidity implies that Société Industrielle et Financière de l'Artois' balance sheet is sturdy like a giant sequoia tree. With this in mind one could posit that its balance sheet means the company is able to handle some adversity. Succinctly put, Société Industrielle et Financière de l'Artois boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But it is Société Industrielle et Financière de l'Artois's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

In the last year Société Industrielle et Financière de l'Artois had a loss before interest and tax, and actually shrunk its revenue by 6.5%, to €120m. That's not what we would hope to see.

So How Risky Is Société Industrielle et Financière de l'Artois?

While Société Industrielle et Financière de l'Artois lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of €18m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. We'll feel more comfortable with the stock once EBIT is positive, given the lacklustre revenue growth. 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 Société Industrielle et Financière de l'Artois has 2 warning signs (and 1 which is potentially serious) we think 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.