Hermès International Société en commandite par actions (EPA: RMS) has a rock solid balance sheet

Warren Buffett said: “Volatility is far from synonymous with risk”. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Above all, Hermès International Société en commandite par actions (EPA: RMS) carries the debt. But the most important question is: what risk does this debt create?

What risk does debt entail?

Debts and other liabilities become risky for a business when it cannot easily meet these obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still painful) scenario is that he must raise new equity at low cost, thereby diluting shareholders over the long term. Of course, many companies use debt to finance their growth without negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

See our latest analysis for Hermès International Société en commandite par actions

What is the net debt of Hermès International Société en commandite par actions?

As you can see below, Hermès International Société en commandite par actions had a debt of € 43.4m in June 2021, up from € 45.8m the previous year. However, it has 5.35 billion euros in cash offsetting this, leading to a net cash position of 5.31 billion euros.

ENXTPA: History of debt to RMS equity September 27, 2021

How strong is the balance sheet of Hermès International Société en commandite par actions?

Zooming in on the latest balance sheet data, we see that Hermès International Société en commandite par actions had a liability of 2.07 billion euros at 12 months and a liability of 1.78 billion euros beyond. In return, he had € 5.35 billion in cash and € 309.2 million in receivables due within 12 months. So he actually has 1.81 billion euros Following liquid assets as total liabilities.

Considering the size of Hermès International Société en commandite par actions, it appears that its liquidity is well balanced with its total liabilities. So the € 134.8 billion company is highly unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. In short, Hermès International Société en commandite par actions has a net cash flow, so it’s fair to say that it doesn’t have a heavy debt load!

In addition to this, we are pleased to announce that Hermès International Société en commandite par actions has increased its EBIT by 88%, thus reducing the specter of future debt repayments. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is future results, more than anything, that will determine the ability of Hermès International Société en commandite par actions to maintain a healthy balance sheet in the future. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

But our last consideration is also important, because a business cannot pay its debts with paper profits; he needs hard cash. While Hermès International Société en commandite par actions has a net cash flow on its balance sheet, it is still worth looking at its ability to convert earnings before interest and taxes (EBIT) into free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. Over the past three years, Hermès International Société en commandite par actions has generated strong free cash flow equivalent to 69% of its EBIT, roughly what we expected. This hard cash allows him to reduce his debt whenever he wants.

In summary

While it still makes sense to investigate a company’s debt, in this case Hermès International Société en commandite par actions has 5.31 billion euros in net cash and a decent balance sheet. And we liked the appearance of the 88% year-over-year growth in EBIT from last year. Is the debt of Hermès International Société en commandite par actions a risk? It does not seem to us. Over time, stock prices tend to follow earnings per share, so if you’re interested in Hermès International Société en commandite par actions, you can click here to view an interactive graph of its historical earnings per share. .

If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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