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 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. We can see that Juventus Football Club S.p.A. (BIT:JUVE) does use debt in its business. 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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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.

See our latest analysis for Juventus Football Club

What Is Juventus Football Club's Net Debt?

You can click the graphic below for the historical numbers, but it shows that as of December 2022 Juventus Football Club had €376.2m of debt, an increase on €216.7m, over one year. However, because it has a cash reserve of €54.9m, its net debt is less, at about €321.4m.

How Strong Is Juventus Football Club's Balance Sheet?

The latest balance sheet data shows that Juventus Football Club had liabilities of €346.0m due within a year, and liabilities of €461.3m falling due after that. On the other hand, it had cash of €54.9m and €106.9m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €645.5m.

This deficit is considerable relative to its market capitalization of €904.8m, so it does suggest shareholders should keep an eye on Juventus Football Club's use of debt. This suggests shareholders would be heavily diluted if the company needed to shore up its balance sheet in a hurry. 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.

In the last year Juventus Football Club wasn't profitable at an EBIT level, but managed to grow its revenue by 11%, to €489m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

Caveat Emptor

Over the last twelve months Juventus Football Club produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable €135m 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 €220m of cash over the last year. So in short it's a really risky stock. 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. Be aware that Juventus Football Club is showing 2 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

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.