David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital. 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. Importantly, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) 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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco Carry?
As you can see below, at the end of March 2019, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had €242.7m of debt, up from €129.9m a year ago. Click the image for more detail. However, it does have €119.0m in cash offsetting this, leading to net debt of about €123.7m.
How Healthy Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's Balance Sheet?
Zooming in on the latest balance sheet data, we can see that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco had liabilities of €271.7m due within 12 months and liabilities of €491.5m due beyond that. Offsetting these obligations, it had cash of €119.0m as well as receivables valued at €70.3m due within 12 months. So its liabilities total €573.9m more than the combination of its cash and short-term receivables.
While this might seem like a lot, it is not so bad since Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has a market capitalization of €1.33b, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. The balance sheet is clearly the area to focus on when you are analysing debt. But it is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco'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 Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco wasn't profitable at an EBIT level, but managed to grow its revenue by11%, to €527m. We usually like to see faster growth from unprofitable companies, but each to their own.
Over the last twelve months Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €8.6m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €84m of cash over the last year. So suffice it to say we consider the stock very risky. 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 Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's profit, revenue, and operating cashflow have changed over the last few years.
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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