Is Aeroporto Guglielmo Marconi di Bologna (BIT:ADB) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. As with many other companies Aeroporto Guglielmo Marconi di Bologna S.p.A. (BIT:ADB) makes use of debt. But should shareholders be worried about its use of debt?

What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. When we examine debt levels, we first consider both cash and debt levels, together.

See our latest analysis for Aeroporto Guglielmo Marconi di Bologna

How Much Debt Does Aeroporto Guglielmo Marconi di Bologna Carry?

The image below, which you can click on for greater detail, shows that at September 2020 Aeroporto Guglielmo Marconi di Bologna had debt of €74.2m, up from €18.8m in one year. However, it also had €60.7m in cash, and so its net debt is €13.5m.

How Healthy Is Aeroporto Guglielmo Marconi di Bologna's Balance Sheet?

The latest balance sheet data shows that Aeroporto Guglielmo Marconi di Bologna had liabilities of €51.8m due within a year, and liabilities of €89.5m falling due after that. Offsetting these obligations, it had cash of €60.7m as well as receivables valued at €13.2m due within 12 months. So its liabilities total €67.5m more than the combination of its cash and short-term receivables.

Aeroporto Guglielmo Marconi di Bologna has a market capitalization of €289.0m, 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 Aeroporto Guglielmo Marconi di Bologna 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, Aeroporto Guglielmo Marconi di Bologna made a loss at the EBIT level, and saw its revenue drop to €83m, which is a fall of 33%. That makes us nervous, to say the least.

Caveat Emptor

Not only did Aeroporto Guglielmo Marconi di Bologna'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 €6.1m. 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 €21m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. 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 Aeroporto Guglielmo Marconi di Bologna .

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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This article by Simply Wall St is general in nature. 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.
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