Is Aeroporto Guglielmo Marconi di Bologna (BIT:ADB) 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. We note that Aeroporto Guglielmo Marconi di Bologna S.p.A. (BIT:ADB) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

Why Does Debt Bring Risk?

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. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

Check out our latest analysis for Aeroporto Guglielmo Marconi di Bologna

What Is Aeroporto Guglielmo Marconi di Bologna's Net Debt?

As you can see below, Aeroporto Guglielmo Marconi di Bologna had €70.8m of debt at September 2021, down from €74.2m a year prior. However, it does have €23.0m in cash offsetting this, leading to net debt of about €47.8m.

A Look At Aeroporto Guglielmo Marconi di Bologna's Liabilities

According to the last reported balance sheet, Aeroporto Guglielmo Marconi di Bologna had liabilities of €48.3m due within 12 months, and liabilities of €86.6m due beyond 12 months. Offsetting these obligations, it had cash of €23.0m as well as receivables valued at €25.9m due within 12 months. So it has liabilities totalling €85.9m more than its cash and near-term receivables, combined.

Aeroporto Guglielmo Marconi di Bologna has a market capitalization of €312.1m, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. 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 Aeroporto Guglielmo Marconi di Bologna's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Over 12 months, Aeroporto Guglielmo Marconi di Bologna made a loss at the EBIT level, and saw its revenue drop to €51m, which is a fall of 39%. 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 €16m. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. Another cause for caution is that is bled €34m in negative free cash flow over the last twelve months. So in short it's a really risky stock. For riskier companies like Aeroporto Guglielmo Marconi di Bologna I always like to keep an eye on the long term profit and revenue trends. Fortunately, you can click to see our interactive graph of its profit, revenue, and operating cashflow.

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.

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.

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