Stock Analysis

Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien (ETR:BVB) Has Debt But No Earnings; Should You Worry?

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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 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. We note that Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien (ETR:BVB) does have debt on its balance sheet. But is this debt a concern to shareholders?

When Is Debt Dangerous?

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. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien

How Much Debt Does Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien Carry?

As you can see below, at the end of March 2023, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had €2.80m of debt, up from none a year ago. Click the image for more detail. But it also has €3.88m in cash to offset that, meaning it has €1.09m net cash.

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XTRA:BVB Debt to Equity History September 8th 2023

How Healthy Is Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had liabilities of €157.9m due within 12 months and liabilities of €60.6m due beyond that. Offsetting these obligations, it had cash of €3.88m as well as receivables valued at €42.7m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €172.0m.

While this might seem like a lot, it is not so bad since Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien has a market capitalization of €458.6m, 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. While it does have liabilities worth noting, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien reported revenue of €462m, which is a gain of 10%, although it did not report any earnings before interest and tax. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And in the last year Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had an earnings before interest and tax (EBIT) loss, truth be told. Indeed, in that time it burnt through €76m of cash and made a loss of €21m. With only €1.09m on the balance sheet, it would appear that its going to need to raise capital again soon. Overall, we'd say the stock is a bit risky, and we're usually very cautious until we see positive free cash flow. For riskier companies like Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.