Stellantis (BIT:STLAM) Has A Pretty 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. Importantly, Stellantis N.V. (BIT:STLAM) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Stellantis

What Is Stellantis's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2023 Stellantis had €27.3b of debt, an increase on €24.9b, over one year. But on the other hand it also has €47.2b in cash, leading to a €19.8b net cash position.

How Strong Is Stellantis' Balance Sheet?

The latest balance sheet data shows that Stellantis had liabilities of €73.9b due within a year, and liabilities of €46.1b falling due after that. Offsetting these obligations, it had cash of €47.2b as well as receivables valued at €11.5b due within 12 months. So its liabilities total €61.3b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its very significant market capitalization of €79.1b, so it does suggest shareholders should keep an eye on Stellantis' use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. Despite its noteworthy liabilities, Stellantis boasts net cash, so it's fair to say it does not have a heavy debt load!

The good news is that Stellantis has increased its EBIT by 9.1% over twelve months, which should ease any concerns about debt repayment. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Stellantis 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 business needs free cash flow to pay off debt; accounting profits just don't cut it. Stellantis 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 most recent three years, Stellantis recorded free cash flow worth 56% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

Although Stellantis's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €19.8b. So we are not troubled with Stellantis's debt use. 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 Stellantis has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.