Does Boise Cascade (NYSE:BCC) Have A Healthy Balance Sheet?
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. We note that Boise Cascade Company (NYSE:BCC) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
Why Does Debt Bring Risk?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. By replacing dilution, though, debt can be an extremely good tool for businesses 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 and debt together.
View our latest analysis for Boise Cascade
How Much Debt Does Boise Cascade Carry?
As you can see below, Boise Cascade had US$444.8m of debt, at March 2022, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$922.7m in cash offsetting this, leading to net cash of US$477.9m.
How Healthy Is Boise Cascade's Balance Sheet?
The latest balance sheet data shows that Boise Cascade had liabilities of US$880.2m due within a year, and liabilities of US$577.1m falling due after that. Offsetting these obligations, it had cash of US$922.7m as well as receivables valued at US$680.2m due within 12 months. So it actually has US$145.7m more liquid assets than total liabilities.
This short term liquidity is a sign that Boise Cascade could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Boise Cascade boasts net cash, so it's fair to say it does not have a heavy debt load!
Better yet, Boise Cascade grew its EBIT by 130% last year, which is an impressive improvement. That boost will make it even easier to pay down debt going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Boise Cascade 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.
Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Boise Cascade 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, Boise Cascade produced sturdy free cash flow equating to 64% 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 we empathize with investors who find debt concerning, you should keep in mind that Boise Cascade has net cash of US$477.9m, as well as more liquid assets than liabilities. And it impressed us with its EBIT growth of 130% over the last year. So we don't think Boise Cascade's use of debt is risky. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. Be aware that Boise Cascade is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...
When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.
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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.
