Stock Analysis

Does Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien (ETR:BVB) Have A Healthy Balance Sheet?

XTRA:BVB
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Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies Borussia Dortmund GmbH & Co. Kommanditgesellschaft auf Aktien (ETR:BVB) makes use of debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

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

What Is Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien's Debt?

The image below, which you can click on for greater detail, shows that at December 2022 Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had debt of €5.42m, up from none in one year. However, it also had €1.03m in cash, and so its net debt is €4.38m.

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XTRA:BVB Debt to Equity History April 29th 2023

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

According to the last reported balance sheet, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had liabilities of €149.9m due within 12 months, and liabilities of €51.9m due beyond 12 months. On the other hand, it had cash of €1.03m and €37.7m worth of receivables due within a year. So its liabilities total €163.0m more than the combination of its cash and short-term receivables.

Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien has a market capitalization of €499.5m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. But it's clear that we should definitely closely examine whether it can manage its debt without dilution. But either way, Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien has virtually no net debt, so it's fair to say it does not have a heavy debt load! There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien 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.

In the last year Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien had a loss before interest and tax, and actually shrunk its revenue by 3.7%, to €424m. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €30m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. However, it doesn't help that it burned through €92m of cash over the last year. So suffice it to say we consider the stock very risky. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. For example - Borussia Dortmund GmbH Kommanditgesellschaft auf Aktien has 1 warning sign we think you should be aware of.

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.