Is Juventus Football Club (BIT:JUVE) A Risky Investment?

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about. 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. Importantly, Juventus Football Club S.p.A. (BIT:JUVE) does carry debt. But should shareholders be worried about its use of debt?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. 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 Juventus Football Club

What Is Juventus Football Club's Net Debt?

The image below, which you can click on for greater detail, shows that at December 2019 Juventus Football Club had debt of €448.7m, up from €424.5m in one year. However, it also had €148.5m in cash, and so its net debt is €300.2m.

A Look At Juventus Football Club's Liabilities

Zooming in on the latest balance sheet data, we can see that Juventus Football Club had liabilities of €326.0m due within 12 months and liabilities of €540.2m due beyond that. Offsetting these obligations, it had cash of €148.5m as well as receivables valued at €130.1m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by €587.6m.

This deficit isn't so bad because Juventus Football Club is worth €1.28b, and thus could probably raise enough capital to shore up its balance sheet, if the need arose. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Juventus Football Club'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, Juventus Football Club reported revenue of €605m, which is a gain of 13%, although it did not report any earnings before interest and tax. We usually like to see faster growth from unprofitable companies, but each to their own.

Caveat Emptor

Over the last twelve months Juventus Football Club produced an earnings before interest and tax (EBIT) loss. To be specific the EBIT loss came in at €67m. 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 €102m of cash over the last year. So in short it's a really risky stock. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. Case in point: We've spotted 2 warning signs for Juventus Football Club you should be aware of.

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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