Société Industrielle et Financière de l'Artois Société anonyme (EPA:ARTO) Has Debt But No Earnings; Should You Worry?

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 Société anonyme (EPA:ARTO) does use debt in its business. But is this debt a concern to shareholders?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first step when considering a company's debt levels is to consider its cash and debt together.

View 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?

You can click the graphic below for the historical numbers, but it shows that as of June 2024 Société Industrielle et Financière de l'Artois Société anonyme had €63.2m of debt, an increase on €47.4m, over one year. But it also has €708.5m in cash to offset that, meaning it has €645.3m net cash.

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

We can see from the most recent balance sheet that Société Industrielle et Financière de l'Artois Société anonyme had liabilities of €123.4m falling due within a year, and liabilities of €4.37m due beyond that. Offsetting this, it had €708.5m in cash and €45.1m in receivables that were due within 12 months. So it actually has €625.8m more liquid assets than total liabilities.

It's good to see that Société Industrielle et Financière de l'Artois Société anonyme has plenty of liquidity on its balance sheet, suggesting conservative management of liabilities. Due to its strong net asset position, it is not likely to face issues with its lenders. 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. 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.

In the last year Société Industrielle et Financière de l'Artois Société anonyme wasn't profitable at an EBIT level, but managed to grow its revenue by 8.0%, to €163m. 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?

Although Société Industrielle et Financière de l'Artois Société anonyme had an earnings before interest and tax (EBIT) loss over the last twelve months, it made a statutory profit of €20m. So taking that on face value, and considering the cash, we don't think its very risky in the near 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, we've discovered 1 warning sign for Société Industrielle et Financière de l'Artois Société anonyme that you should be aware of before investing here.

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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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.