Would Just Eat Takeaway.com (AMS:TKWY) be better off with less debt?

Legendary fund manager Li Lu (who was backed by Charlie Munger) once said, “The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.” So it seems that the smart money knows that debt – which is usually associated with bankruptcies – is a very important factor when assessing the risk of a company. Importantly, Just Eat Takeaway.com NV (AMS:TKWY) is in debt. The real question, however, is whether this debt makes the company a risk.

When is debt dangerous?

Generally speaking, debt only becomes a real problem when a company can’t easily pay it back, either by raising capital or with its own cash flow. If the company can’t meet its legal obligations to pay off debt, shareholders could end up empty-handed. While this doesn’t happen too often, we often see indebted companies permanently dilute shareholder ownership because lenders force them to raise capital at a fire-sale price. Of course, debt can be an important tool for businesses, especially capital-intensive businesses. When considering how much debt a company has, you should first look at its cash and debt together.

Check out our latest analysis for Just Eat Takeaway.com

How much debt does Just Eat Takeaway.com have?

As you can see below, Just Eat Takeaway.com had €1.81 billion in debt as of June 2024, up from €2.01 billion a year earlier. On the other hand, the company has €1.35 billion in cash, resulting in net debt of about €458.0 million.

A look at Just Eat Takeaway.com’s liabilities

The latest balance sheet data shows that Just Eat Takeaway.com has liabilities of €1.30 billion due within one year and liabilities of €2.52 billion due thereafter. These liabilities are offset by cash of €1.35 billion and receivables of €484.0 million due within 12 months. So liabilities are €1.99 billion more than the combination of cash and short-term receivables.

This is a huge level of debt relative to its market capitalization of €2.66b. Should its lenders demand that the company strengthen its balance sheet, shareholders would likely face heavy dilution. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will determine whether Just Eat Takeaway.com can strengthen its balance sheet over time. So if you want to know what the professionals think, you might find this free report on analyst profit forecasts interesting.

Last year, Just Eat Takeaway.com posted a loss before interest and taxes and its turnover actually fell by 4.1% to 5.2 billion euros. We would like to see growth.

Reservation by the buyer

Importantly, Just Eat Takeaway.com posted a loss before interest and tax (EBIT) last year. The EBIT loss was a whopping €400m. Taking that into account, along with the liabilities mentioned above, we’re not very confident that the company should take on so much debt. Therefore, we think its balance sheet is a little stretched, but not beyond repair. We’d feel better if it turned its trailing twelve months loss of €1.9b into a profit. So we think this stock is quite risky. When analyzing debt levels, the balance sheet is the obvious place to start. But ultimately, any company can contain risks that exist off the balance sheet. We have identified 2 warning signs with Just Eat Takeaway.com, and understanding them should be part of your investment process.

If you are interested in investing in companies that can grow profits without the burden of debt, check this out free List of growing companies that have net cash on their balance sheet.

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