Is Société Industrielle et Financière de l'Artois Société anonyme (EPA:ARTO) Weighed On By Its Debt Load?

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 should shareholders be worried about its use of debt?

When Is Debt A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth 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 Société Industrielle et Financière de l'Artois Société anonyme

How Much Debt Does Société Industrielle et Financière de l'Artois Société anonyme Carry?

As you can see below, at the end of December 2023, Société Industrielle et Financière de l'Artois Société anonyme had €56.9m of debt, up from €40.7m a year ago. Click the image for more detail. However, it does have €717.6m in cash offsetting this, leading to net cash of €660.6m.

How Strong Is Société Industrielle et Financière de l'Artois Société anonyme's Balance Sheet?

The latest balance sheet data shows that Société Industrielle et Financière de l'Artois Société anonyme had liabilities of €121.7m due within a year, and liabilities of €4.47m falling due after that. Offsetting this, it had €717.6m in cash and €49.5m in receivables that were due within 12 months. So it can boast €641.0m more liquid assets than total liabilities.

This surplus strongly suggests that Société Industrielle et Financière de l'Artois Société anonyme has a rock-solid balance sheet (and the debt is of no concern whatsoever). Having regard to this fact, we think its balance sheet is as strong as an ox. Simply put, the fact that Société Industrielle et Financière de l'Artois Société anonyme has more cash than debt is arguably a good indication that it can manage its debt safely. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Société Industrielle et Financière de l'Artois Société anonyme will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Over 12 months, Société Industrielle et Financière de l'Artois Société anonyme reported revenue of €159m, which is a gain of 7.0%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

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 €30m. So taking that on face value, and considering the cash, we don't think its very risky in the near term. With mediocre revenue growth in the last year, we're don't find the investment opportunity particularly compelling. When we look at a riskier company, we like to check how their profits (or losses) are trending over time. Today, we're providing readers this interactive graph showing how Société Industrielle et Financière de l'Artois Société anonyme's profit, revenue, and operating cashflow have changed over the last few years.

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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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.

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