Is CTS Eventim KGaA (ETR:EVD) A Risky Investment?

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 seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies CTS Eventim AG & Co. KGaA (ETR:EVD) makes use of debt. But the more important question is: how much risk is that debt creating?

Our free stock report includes 1 warning sign investors should be aware of before investing in CTS Eventim KGaA. Read for free now.

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is CTS Eventim KGaA's Debt?

The image below, which you can click on for greater detail, shows that at December 2024 CTS Eventim KGaA had debt of €3.85m, up from €3.23m in one year. However, its balance sheet shows it holds €1.75b in cash, so it actually has €1.74b net cash.

A Look At CTS Eventim KGaA's Liabilities

The latest balance sheet data shows that CTS Eventim KGaA had liabilities of €2.50b due within a year, and liabilities of €387.4m falling due after that. Offsetting this, it had €1.75b in cash and €353.6m in receivables that were due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €782.8m.

Since publicly traded CTS Eventim KGaA shares are worth a very impressive total of €9.41b, 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.

View our latest analysis for CTS Eventim KGaA

Another good sign is that CTS Eventim KGaA has been able to increase its EBIT by 21% in twelve months, making it easier to pay down debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine CTS Eventim KGaA'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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. CTS Eventim KGaA may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, CTS Eventim KGaA actually produced more free cash flow than EBIT over the last three years. That sort of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Summing Up

We could understand if investors are concerned about CTS Eventim KGaA's liabilities, but we can be reassured by the fact it has has net cash of €1.74b. And it impressed us with free cash flow of €330m, being 106% of its EBIT. So we don't think CTS Eventim KGaA's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. For example - CTS Eventim KGaA has 1 warning sign we think you should be aware of.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.