Is Sport Lisboa e Benfica - Futebol SAD (ELI:SLBEN) Using Too Much Debt?

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' 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, Sport Lisboa e Benfica - Futebol, SAD (ELI:SLBEN) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. 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, debt can be an important tool in businesses, particularly capital heavy businesses. The first step when considering a company's debt levels is to consider its cash and debt together.

Check out our latest analysis for Sport Lisboa e Benfica - Futebol SAD

How Much Debt Does Sport Lisboa e Benfica - Futebol SAD Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2021 Sport Lisboa e Benfica - Futebol SAD had €153.8m of debt, an increase on €146.6m, over one year. However, it does have €14.2m in cash offsetting this, leading to net debt of about €139.6m.

How Strong Is Sport Lisboa e Benfica - Futebol SAD's Balance Sheet?

According to the last reported balance sheet, Sport Lisboa e Benfica - Futebol SAD had liabilities of €174.2m due within 12 months, and liabilities of €195.6m due beyond 12 months. On the other hand, it had cash of €14.2m and €59.6m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by €296.0m.

The deficiency here weighs heavily on the €81.2m company itself, as if a child were struggling under the weight of an enormous back-pack full of books, his sports gear, and a trumpet. So we definitely think shareholders need to watch this one closely. At the end of the day, Sport Lisboa e Benfica - Futebol SAD would probably need a major re-capitalization if its creditors were to demand repayment. There's no doubt that we learn most about debt from the balance sheet. But it is Sport Lisboa e Benfica - Futebol SAD's earnings that will influence how the balance sheet holds up in the future. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

In the last year Sport Lisboa e Benfica - Futebol SAD wasn't profitable at an EBIT level, but managed to grow its revenue by 49%, to €136m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Despite the top line growth, Sport Lisboa e Benfica - Futebol SAD still had an earnings before interest and tax (EBIT) loss over the last year. Its EBIT loss was a whopping €78m. Combining this information with the significant liabilities we already touched on makes us very hesitant about this stock, to say the least. Of course, it may be able to improve its situation with a bit of luck and good execution. Nevertheless, we would not bet on it given that it vaporized €17m in cash over the last twelve months, and it doesn't have much by way of liquid assets. So we consider this a high risk stock and we wouldn't be at all surprised if the company asks shareholders for money before long. 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. Case in point: We've spotted 3 warning signs for Sport Lisboa e Benfica - Futebol SAD you should be aware of, and 2 of them can't be ignored.

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.