We Think Jungfraubahn Holding (VTX:JFN) Has A Fair Chunk Of Debt

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.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. As with many other companies Jungfraubahn Holding AG (VTX:JFN) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. If things get really bad, the lenders can take control of the business. 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. 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.

See our latest analysis for Jungfraubahn Holding

What Is Jungfraubahn Holding's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of June 2021 Jungfraubahn Holding had CHF148.0m of debt, an increase on CHF68.5m, over one year. On the flip side, it has CHF8.74m in cash leading to net debt of about CHF139.3m.

A Look At Jungfraubahn Holding's Liabilities

The latest balance sheet data shows that Jungfraubahn Holding had liabilities of CHF108.0m due within a year, and liabilities of CHF115.9m falling due after that. Offsetting these obligations, it had cash of CHF8.74m as well as receivables valued at CHF19.5m due within 12 months. So it has liabilities totalling CHF195.7m more than its cash and near-term receivables, combined.

Jungfraubahn Holding has a market capitalization of CHF788.3m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Jungfraubahn Holding'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.

Over 12 months, Jungfraubahn Holding made a loss at the EBIT level, and saw its revenue drop to CHF126m, which is a fall of 28%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Jungfraubahn Holding's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at CHF9.5m. 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 CHF90m 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 Jungfraubahn Holding's profit, revenue, and operating cashflow have changed over the last few years.

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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