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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. 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, Saint Jean Groupe Société anonyme (EPA:SABE) does carry debt. But is this debt a concern to shareholders?
When Is Debt A Problem?
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. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.
View our latest analysis for Saint Jean Groupe Société anonyme
What Is Saint Jean Groupe Société anonyme's Net Debt?
You can click the graphic below for the historical numbers, but it shows that as of June 2019 Saint Jean Groupe Société anonyme had €29.1m of debt, an increase on €25.3m, over one year. However, its balance sheet shows it holds €45.5m in cash, so it actually has €16.3m net cash.
A Look At Saint Jean Groupe Société anonyme's Liabilities
According to the last reported balance sheet, Saint Jean Groupe Société anonyme had liabilities of €21.5m due within 12 months, and liabilities of €26.6m due beyond 12 months. Offsetting these obligations, it had cash of €45.5m as well as receivables valued at €9.35m due within 12 months. So it can boast €6.69m more liquid assets than total liabilities.
This short term liquidity is a sign that Saint Jean Groupe Société anonyme could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Saint Jean Groupe Société anonyme has more cash than debt is arguably a good indication that it can manage its debt safely.
It was also good to see that despite losing money on the EBIT line last year, Saint Jean Groupe Société anonyme turned things around in the last 12 months, delivering and EBIT of €2.0m. The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since Saint Jean Groupe Société anonyme will need earnings to service that debt. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.