We Think Just Eat Takeaway.com (AMS:TKWY) Has A Fair Chunk Of Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. We can see that Just Eat Takeaway.com N.V. (AMS:TKWY) does use debt in its business. But the real question is whether this debt is making the company risky.

When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Just Eat Takeaway.com

What Is Just Eat Takeaway.com's Debt?

As you can see below, Just Eat Takeaway.com had €2.03b of debt, at December 2023, which is about the same as the year before. You can click the chart for greater detail. However, it also had €1.73b in cash, and so its net debt is €299.0m.

How Healthy Is Just Eat Takeaway.com's Balance Sheet?

The latest balance sheet data shows that Just Eat Takeaway.com had liabilities of €1.55b due within a year, and liabilities of €2.59b falling due after that. Offsetting these obligations, it had cash of €1.73b as well as receivables valued at €455.0m due within 12 months. So its liabilities total €1.95b more than the combination of its cash and short-term receivables.

This deficit is considerable relative to its market capitalization of €2.93b, so it does suggest shareholders should keep an eye on Just Eat Takeaway.com's use of debt. 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 ultimately the future profitability of the business will decide if Just Eat Takeaway.com 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, Just Eat Takeaway.com made a loss at the EBIT level, and saw its revenue drop to €5.2b, which is a fall of 7.1%. That's not what we would hope to see.

Caveat Emptor

Over the last twelve months Just Eat Takeaway.com produced an earnings before interest and tax (EBIT) loss. Indeed, it lost a very considerable €480m at the EBIT level. 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. Another cause for caution is that is bled €27m in negative free cash flow over the last twelve months. So suffice it to say we do consider the stock to be risky. 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. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Just Eat Takeaway.com you should know about.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.