WEBULL

Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) Has A Somewhat Strained Balance Sheet

Simply Wall St · 2d ago

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.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) does carry debt. But the more important question is: how much risk is that debt creating?

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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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does Compagnie Générale des Établissements Michelin Société en commandite par actions Carry?

As you can see below, Compagnie Générale des Établissements Michelin Société en commandite par actions had €6.49b of debt at June 2025, down from €6.79b a year prior. However, it does have €3.12b in cash offsetting this, leading to net debt of about €3.37b.

debt-equity-history-analysis
ENXTPA:ML Debt to Equity History December 27th 2025

A Look At Compagnie Générale des Établissements Michelin Société en commandite par actions' Liabilities

The latest balance sheet data shows that Compagnie Générale des Établissements Michelin Société en commandite par actions had liabilities of €8.19b due within a year, and liabilities of €9.63b falling due after that. Offsetting these obligations, it had cash of €3.12b as well as receivables valued at €4.03b due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €10.7b.

While this might seem like a lot, it is not so bad since Compagnie Générale des Établissements Michelin Société en commandite par actions has a huge market capitalization of €19.2b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk.

Check out our latest analysis for Compagnie Générale des Établissements Michelin Société en commandite par actions

We measure a company's debt load relative to its earnings power by looking at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and by calculating how easily its earnings before interest and tax (EBIT) cover its interest expense (interest cover). The advantage of this approach is that we take into account both the absolute quantum of debt (with net debt to EBITDA) and the actual interest expenses associated with that debt (with its interest cover ratio).

Compagnie Générale des Établissements Michelin Société en commandite par actions's net debt is only 0.73 times its EBITDA. And its EBIT covers its interest expense a whopping 23.2 times over. So we're pretty relaxed about its super-conservative use of debt. But the bad news is that Compagnie Générale des Établissements Michelin Société en commandite par actions has seen its EBIT plunge 19% in the last twelve months. We think hat kind of performance, if repeated frequently, could well lead to difficulties for the stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Compagnie Générale des Établissements Michelin Société en commandite par actions can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. So it's worth checking how much of that EBIT is backed by free cash flow. During the last three years, Compagnie Générale des Établissements Michelin Société en commandite par actions produced sturdy free cash flow equating to 63% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Our View

Neither Compagnie Générale des Établissements Michelin Société en commandite par actions's ability to grow its EBIT nor its level of total liabilities gave us confidence in its ability to take on more debt. But its interest cover tells a very different story, and suggests some resilience. We think that Compagnie Générale des Établissements Michelin Société en commandite par actions's debt does make it a bit risky, after considering the aforementioned data points together. Not all risk is bad, as it can boost share price returns if it pays off, but this debt risk is worth keeping in mind. 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. Case in point: We've spotted 2 warning signs for Compagnie Générale des Établissements Michelin Société en commandite par actions you should be aware of.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.