SES-imagotag Société Anonyme (EPA:SESL) Seems To Use Debt Rather Sparingly

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies SES-imagotag Société Anonyme (EPA:SESL) makes use of debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. 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 SES-imagotag Société Anonyme

What Is SES-imagotag Société Anonyme's Debt?

The chart below, which you can click on for greater detail, shows that SES-imagotag Société Anonyme had €81.1m in debt in June 2022; about the same as the year before. But it also has €81.2m in cash to offset that, meaning it has €153.0k net cash.

A Look At SES-imagotag Société Anonyme's Liabilities

According to the last reported balance sheet, SES-imagotag Société Anonyme had liabilities of €288.1m due within 12 months, and liabilities of €100.6m due beyond 12 months. On the other hand, it had cash of €81.2m and €151.0m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €156.5m.

Of course, SES-imagotag Société Anonyme has a market capitalization of €1.56b, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, SES-imagotag Société Anonyme boasts net cash, so it's fair to say it does not have a heavy debt load!

Importantly, SES-imagotag Société Anonyme grew its EBIT by 61% over the last twelve months, and that growth will make it easier to handle its debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if SES-imagotag Société Anonyme can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. SES-imagotag 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. Over the last two years, SES-imagotag Société Anonyme actually produced more free cash flow than EBIT. That sort of strong cash conversion gets us as excited as the crowd when the beat drops at a Daft Punk concert.

Summing Up

While SES-imagotag Société Anonyme does have more liabilities than liquid assets, it also has net cash of €153.0k. The cherry on top was that in converted 177% of that EBIT to free cash flow, bringing in -€2.0m. So is SES-imagotag Société Anonyme's debt a risk? It doesn't seem so to us. Over time, share prices tend to follow earnings per share, so if you're interested in SES-imagotag Société Anonyme, you may well want to click here to check an interactive graph of its earnings per share history.

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.