Is Sportradar Group (NASDAQ:SRAD) Using Too Much Debt?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' 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. As with many other companies Sportradar Group AG (NASDAQ:SRAD) makes use of debt. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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.

Check out our latest analysis for Sportradar Group

What Is Sportradar Group's Net Debt?

As you can see below, at the end of September 2024, Sportradar Group had €47.2m of debt, up from €27.2m a year ago. Click the image for more detail. However, its balance sheet shows it holds €368.4m in cash, so it actually has €321.2m net cash.

How Healthy Is Sportradar Group's Balance Sheet?

We can see from the most recent balance sheet that Sportradar Group had liabilities of €369.2m falling due within a year, and liabilities of €991.8m due beyond that. Offsetting these obligations, it had cash of €368.4m as well as receivables valued at €167.7m due within 12 months. So it has liabilities totalling €825.0m more than its cash and near-term receivables, combined.

Of course, Sportradar Group has a market capitalization of €4.90b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. Despite its noteworthy liabilities, Sportradar Group boasts net cash, so it's fair to say it does not have a heavy debt load!

It is well worth noting that Sportradar Group's EBIT shot up like bamboo after rain, gaining 42% in the last twelve months. That'll make it easier to manage its debt. 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 Sportradar Group 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Sportradar Group has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. During the last three years, Sportradar Group produced sturdy free cash flow equating to 68% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While Sportradar Group does have more liabilities than liquid assets, it also has net cash of €321.2m. And it impressed us with its EBIT growth of 42% over the last year. So we don't have any problem with Sportradar Group's use of debt. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Sportradar Group's earnings per share history for free.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.