Here’s why Juventus Football Club (BIT: JUVE) can go into debt
Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but the fact that you suffer a permanent loss of capital. “. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Like many other companies Juventus Football Club SpA (BIT: JUVE) uses debt. But should shareholders be worried about its use of debt?
What risk does debt entail?
Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are ruthlessly liquidated by their bankers. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. By replacing dilution, however, debt can be a very good tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.
See our latest review for Juventus Football Club
How much debt does Juventus football club have?
You can click on the graph below for historical figures, but it shows Juventus Football Club had € 369.1million in debt as of December 2020, up from € 448.7million a year earlier. However, it has 49.3 million euros in cash offsetting this, leading to net debt of around 319.8 million euros.
How healthy is Juventus Football Club’s record?
The most recent balance sheet shows that Juventus Football Club had liabilities of 366.0 million euros due within one year and liabilities of 485.3 million euros due beyond. On the other hand, it had cash of € 49.3 million and € 116.6 million in receivables within one year. Its liabilities thus exceed the sum of its cash and its receivables (short term) by € 685.4 million.
That’s a mountain of leverage compared to its market capitalization of € 956.5 million. If its lenders asked it to consolidate the balance sheet, shareholders would likely face severe dilution. The balance sheet is clearly the area you need to focus on when analyzing debt. But ultimately, the future profitability of the company will decide whether Juventus Football Club can strengthen their balance sheet over time. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Over 12 months, Juventus Football Club recorded a loss in EBIT and saw its turnover fall to € 499m, a decrease of 17%. We would much prefer to see the growth.
While Juventus Football Club’s declining income is about as heartwarming as a wet blanket, its earnings before interest and taxes (EBIT) can be said to be even less attractive. Indeed, it lost 120 million euros very considerable in terms of EBIT. When we look at this and recall the liabilities on its balance sheet, versus the cash flow, it seems unwise to us that the company has debt. We therefore believe that its record is a bit strained, but not irreparable. Another reason for caution, € 84 million of negative free cash flow has been bled over the last twelve months. In short, it’s a really risky title. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. For example, we have identified 2 warning signs for Juventus Football Club (1 is significant) you must be aware.
At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.
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