Is Juventus Football Club (BIT:JUVE) Using Too Much Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a 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. Importantly, Juventus Football Club S.p.A. (BIT:JUVE) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

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 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.

View our latest analysis for Juventus Football Club

What Is Juventus Football Club's Net Debt?

As you can see below, Juventus Football Club had €216.7m of debt at December 2021, down from €369.1m a year prior. However, it does have €171.1m in cash offsetting this, leading to net debt of about €45.6m.

How Healthy Is Juventus Football Club's Balance Sheet?

We can see from the most recent balance sheet that Juventus Football Club had liabilities of €303.1m falling due within a year, and liabilities of €363.1m due beyond that. On the other hand, it had cash of €171.1m and €102.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €392.2m.

Juventus Football Club has a market capitalization of €799.7m, 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. 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 Juventus Football Club 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.

Over 12 months, Juventus Football Club made a loss at the EBIT level, and saw its revenue drop to €442m, which is a fall of 11%. That's not what we would hope to see.

Caveat Emptor

While Juventus Football Club's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping €185m. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €107m of cash over the last year. So suffice it to say we consider the stock very risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 4 warning signs for Juventus Football Club (of which 2 are significant!) 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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