Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' 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 A Problem?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sportradar Group's Net Debt?

The image below, which you can click on for greater detail, shows that at September 2024 Sportradar Group had debt of €47.2m, up from €27.2m in one year. 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?

According to the last reported balance sheet, Sportradar Group had liabilities of €369.2m due within 12 months, and liabilities of €991.8m due beyond 12 months. Offsetting these obligations, it had cash of €368.4m as well as receivables valued at €167.7m due within 12 months. So its liabilities total €825.0m more than the combination of its cash and short-term receivables.

Of course, Sportradar Group has a market capitalization of €5.09b, so these liabilities are probably manageable. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. 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. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine Sportradar Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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. Over the most recent three years, Sportradar Group recorded free cash flow worth 68% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

Although Sportradar Group's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of €321.2m. And it impressed us with its EBIT growth of 42% over the last year. So we don't think Sportradar Group's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Sportradar Group, you may well want to click here to check an interactive graph of its earnings per share history.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.