Is Sport Lisboa e Benfica - Futebol SAD (ELI:SLBEN) Weighed On By Its Debt Load?

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 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. As with many other companies Sport Lisboa e Benfica - Futebol, SAD (ELI:SLBEN) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Sport Lisboa e Benfica - Futebol SAD

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

As you can see below, at the end of June 2021, Sport Lisboa e Benfica - Futebol SAD had €145.7m of debt, up from €99.4m a year ago. Click the image for more detail. On the flip side, it has €44.1m in cash leading to net debt of about €101.7m.

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

Zooming in on the latest balance sheet data, we can see that Sport Lisboa e Benfica - Futebol SAD had liabilities of €197.0m due within 12 months and liabilities of €182.6m due beyond that. On the other hand, it had cash of €44.1m and €43.6m worth of receivables due within a year. So its liabilities total €291.9m more than the combination of its cash and short-term receivables.

The deficiency here weighs heavily on the €132.5m 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'd watch its balance sheet closely, without a doubt. After all, Sport Lisboa e Benfica - Futebol SAD would likely require a major re-capitalisation if it had to pay its creditors today. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Sport Lisboa e Benfica - Futebol SAD will need earnings to service that debt. 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.

Over 12 months, Sport Lisboa e Benfica - Futebol SAD made a loss at the EBIT level, and saw its revenue drop to €94m, which is a fall of 33%. To be frank that doesn't bode well.

Caveat Emptor

While Sport Lisboa e Benfica - Futebol SAD's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Its EBIT loss was a whopping €108m. When we look at that alongside the significant liabilities, we're not particularly confident about the company. It would need to improve its operations quickly for us to be interested in it. Not least because it had negative free cash flow of €30m over the last twelve months. So suffice it to say we consider the stock to be risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. 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 are a bit unpleasant.

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.

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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