Does Gérard Perrier Industrie (EPA:PERR) Have A Healthy Balance Sheet?
Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Gérard Perrier Industrie S.A. (EPA:PERR) does have debt on its balance sheet. But is this debt a concern to shareholders?
When Is Debt A Problem?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.
View our latest analysis for Gérard Perrier Industrie
What Is Gérard Perrier Industrie's Net Debt?
As you can see below, Gérard Perrier Industrie had €15.5m of debt, at December 2018, which is about the same the year before. You can click the chart for greater detail. However, it does have €39.2m in cash offsetting this, leading to net cash of €23.7m.
A Look At Gérard Perrier Industrie's Liabilities
Zooming in on the latest balance sheet data, we can see that Gérard Perrier Industrie had liabilities of €60.2m due within 12 months and liabilities of €19.6m due beyond that. Offsetting these obligations, it had cash of €39.2m as well as receivables valued at €64.6m due within 12 months. So it can boast €23.9m more liquid assets than total liabilities.
This short term liquidity is a sign that Gérard Perrier Industrie could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Gérard Perrier Industrie has more cash than debt is arguably a good indication that it can manage its debt safely.
The good news is that Gérard Perrier Industrie has increased its EBIT by 6.8% 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 it is future earnings, more than anything, that will determine Gérard Perrier Industrie's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
Finally, a company can only pay off debt with cold hard cash, not accounting profits. While Gérard Perrier Industrie has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Gérard Perrier Industrie produced sturdy free cash flow equating to 58% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.
Summing up
While it is always sensible to investigate a company's debt, in this case Gérard Perrier Industrie has €24m in net cash and a decent-looking balance sheet. So is Gérard Perrier Industrie's debt a risk? It doesn't seem so to us. Another positive for shareholders is that it pays dividends. So if you like receiving those dividend payments, check Gérard Perrier Industrie's dividend history, without delay!
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
