Would Just Eat Takeaway.com (AMS:TKWY) Be Better Off With Less Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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. Importantly, Just Eat Takeaway.com N.V. (AMS:TKWY) does carry debt. But the real question is whether this debt is making the company risky.

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for Just Eat Takeaway.com

How Much Debt Does Just Eat Takeaway.com Carry?

As you can see below, Just Eat Takeaway.com had €1.81b of debt at June 2024, down from €2.01b a year prior. On the flip side, it has €1.35b in cash leading to net debt of about €458.0m.

A Look At Just Eat Takeaway.com's Liabilities

The latest balance sheet data shows that Just Eat Takeaway.com had liabilities of €1.30b due within a year, and liabilities of €2.52b falling due after that. Offsetting these obligations, it had cash of €1.35b as well as receivables valued at €484.0m due within 12 months. So its liabilities total €1.99b more than the combination of its cash and short-term receivables.

This is a mountain of leverage relative to its market capitalization of €2.66b. Should its lenders demand that it shore up the balance sheet, shareholders would likely face severe 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 Just Eat Takeaway.com can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year Just Eat Takeaway.com had a loss before interest and tax, and actually shrunk its revenue by 4.1%, to €5.2b. We would much prefer see growth.

Caveat Emptor

Importantly, Just Eat Takeaway.com had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €400m. 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. We would feel better if it turned its trailing twelve month loss of €1.9b into a profit. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 2 warning signs with Just Eat Takeaway.com , and understanding them should be part of your investment process.

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. 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.