Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Like many other companies Organization of Football Pronostics SA (ATH:OPAP) uses debt. But the real question is whether this debt makes the business risky.
Why is debt risky?
Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first step when considering a company’s debt levels is to consider its cash and debt together.
See our latest analysis for the organization of football predictions
What is the Net Debt organization of Football Predictions?
As you can see below, Organization of Football Pronostics had €839.9 million in debt as of March 2022, up from €1.04 billion the previous year. However, he has €801.2 million in cash to offset this, resulting in a net debt of around €38.8 million.
How solid is the organization of the balance sheet of football predictions?
We can see from the most recent balance sheet that the Organization of Football Predictions had liabilities of €840.7m due in one year and liabilities of €721.5m due beyond. In return for these obligations, it had cash of €801.2 million as well as receivables worth €80.1 million at less than 12 months. It therefore has liabilities totaling 680.9 million euros more than its cash and short-term receivables, combined.
Given that Organization of Football Prognostics has a market capitalization of €4.81 billion, it’s hard to believe that these liabilities pose a big threat. That said, it is clear that we must continue to monitor its record, lest it deteriorate. Having practically no net debt, Organization of Football Predictions has indeed a very light debt.
We measure a company’s leverage against its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and calculating how easily its earnings before interest and taxes (EBIT ) covers its interest charge (interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.
With debt at a measly 0.061 times EBITDA and EBIT covering interest at 11.8 times, it’s clear that the Organization of Football Prognostics is not a desperate borrower. Indeed, relative to its earnings, its leverage seems light as a feather. What is even more impressive is that Organization of Football Prognostics increased its EBIT by 410% year-over-year. This boost will make it even easier to pay off debt in the future. The balance sheet is clearly the area to focus on when analyzing debt. But it is future revenue, more than anything, that will determine the ability of Organization of Football Prognostics to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.
Finally, a business needs free cash flow to pay off its debts; book profits are not enough. We must therefore clearly examine whether this EBIT generates a corresponding free cash flow. Fortunately for all shareholders, Organization of Football Prognostics has actually produced more free cash flow than EBIT over the past three years. There’s nothing better than incoming money to stay in the good books of your lenders.
Our point of view
The good news is that Organization of Football Prognostics’ demonstrated ability to convert EBIT into free cash flow delights us like a fluffy puppy does a toddler. And this is only the beginning of good news since its EBIT growth rate is also very encouraging. It seems that the Football Predictions Organization has no trouble standing and has no reason to fear its lenders. In our view, he has a healthy and happy record. The balance sheet is clearly the area to focus on when analyzing debt. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, we found 2 warning signs for the organization of football predictions which you should be aware of before investing here.
In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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