Would Juventus Football Club (BIT:JUVE) Be Better Off With Less Debt?

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 Juventus Football Club S.p.A. (BIT:JUVE) makes use of debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we think about a company's use of debt, we first look at cash and debt together.

Check out 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 Juventus Football Club had €383.0m of debt in December 2020, down from €448.7m, one year before. However, because it has a cash reserve of €49.3m, its net debt is less, at about €333.7m.

How Strong Is Juventus Football Club's Balance Sheet?

The latest balance sheet data shows that Juventus Football Club had liabilities of €366.0m due within a year, and liabilities of €485.3m falling due after that. Offsetting this, it had €49.3m in cash and €110.5m in receivables that were due within 12 months. So its liabilities total €691.5m more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of €1.10b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe dilution. There's no doubt that we learn most about debt from the balance sheet. 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 had a loss before interest and tax, and actually shrunk its revenue by 17%, to €503m. That's not what we would hope to see.

Caveat Emptor

Not only did Juventus Football Club's revenue slip over the last twelve months, but it also produced negative earnings before interest and tax (EBIT). To be specific the EBIT loss came in at €108m. 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. Another cause for caution is that is bled €84m in negative free cash flow over the last twelve months. So in short it's a really risky stock. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Juventus Football Club .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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