CTS Eventim KGaA (ETR:EVD) Has Debt But No Earnings; Should You Worry?

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. As with many other companies CTS Eventim AG & Co. KGaA (ETR:EVD) makes use of debt. But the real question is whether this debt is making the company risky.

What Risk Does Debt Bring?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. 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 CTS Eventim KGaA

What Is CTS Eventim KGaA's Debt?

The image below, which you can click on for greater detail, shows that CTS Eventim KGaA had debt of €64.5m at the end of September 2021, a reduction from €256.3m over a year. But it also has €821.6m in cash to offset that, meaning it has €757.1m net cash.

A Look At CTS Eventim KGaA's Liabilities

We can see from the most recent balance sheet that CTS Eventim KGaA had liabilities of €1.26b falling due within a year, and liabilities of €227.6m due beyond that. Offsetting these obligations, it had cash of €821.6m as well as receivables valued at €47.9m due within 12 months. So its liabilities total €620.7m more than the combination of its cash and short-term receivables.

Since publicly traded CTS Eventim KGaA shares are worth a total of €5.38b, it seems unlikely that this level of liabilities would be a major threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. While it does have liabilities worth noting, CTS Eventim KGaA also has more cash than debt, so we're pretty confident it can manage its debt safely. 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 CTS Eventim KGaA can strengthen its balance sheet over time. 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, CTS Eventim KGaA made a loss at the EBIT level, and saw its revenue drop to €208m, which is a fall of 65%. To be frank that doesn't bode well.

So How Risky Is CTS Eventim KGaA?

While CTS Eventim KGaA lost money on an earnings before interest and tax (EBIT) level, it actually booked a paper profit of €11m. So when you consider it has net cash, along with the statutory profit, the stock probably isn't as risky as it might seem, at least in the short term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. Be aware that CTS Eventim KGaA is showing 1 warning sign in our investment analysis , you should know about...

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.