Is Société Industrielle et Financière de l'Artois Société anonyme (EPA:ARTO) Using Debt In A Risky Way?

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. Importantly, Société Industrielle et Financière de l'Artois Société anonyme (EPA:ARTO) does carry debt. But the more important question is: how much risk is that debt creating?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Société Industrielle et Financière de l'Artois Société anonyme

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

The chart below, which you can click on for greater detail, shows that Société Industrielle et Financière de l'Artois Société anonyme had €47.4m in debt in June 2023; about the same as the year before. However, it does have €704.3m in cash offsetting this, leading to net cash of €656.9m.

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

According to the last reported balance sheet, Société Industrielle et Financière de l'Artois Société anonyme had liabilities of €105.5m due within 12 months, and liabilities of €5.00m due beyond 12 months. On the other hand, it had cash of €704.3m and €36.8m worth of receivables due within a year. So it can boast €630.6m more liquid assets than total liabilities.

This surplus liquidity suggests that Société Industrielle et Financière de l'Artois Société anonyme's balance sheet could take a hit just as well as Homer Simpson's head can take a punch. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Succinctly put, Société Industrielle et Financière de l'Artois Société anonyme boasts net cash, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But it is Société Industrielle et Financière de l'Artois Société anonyme's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

Over 12 months, Société Industrielle et Financière de l'Artois Société anonyme reported revenue of €151m, which is a gain of 11%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

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

While Société Industrielle et Financière de l'Artois Société anonyme lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of €22m. 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. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. We've identified 1 warning sign with Société Industrielle et Financière de l'Artois Société anonyme , and understanding them should be part of your investment process.

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.