Is West Fraser Timber (TSE:WFG) Using Too Much Debt?

Legendary fund manager Li Lu (who Charlie Munger backed) 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 the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We can see that West Fraser Timber Co. Ltd. (TSE:WFG) does use debt in its business. But the more important question is: how much risk is that debt creating?

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When Is Debt Dangerous?

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 usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. 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. When we examine debt levels, we first consider both cash and debt levels, together.

How Much Debt Does West Fraser Timber Carry?

The image below, which you can click on for greater detail, shows that West Fraser Timber had debt of US$300.0m at the end of June 2025, a reduction from US$500.0m over a year. But on the other hand it also has US$646.0m in cash, leading to a US$346.0m net cash position.

How Strong Is West Fraser Timber's Balance Sheet?

The latest balance sheet data shows that West Fraser Timber had liabilities of US$669.0m due within a year, and liabilities of US$1.20b falling due after that. On the other hand, it had cash of US$646.0m and US$368.0m worth of receivables due within a year. So its liabilities total US$855.0m more than the combination of its cash and short-term receivables.

Since publicly traded West Fraser Timber shares are worth a total of US$5.27b, it seems unlikely that this level of liabilities would be a major threat. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, West Fraser Timber also has more cash than debt, so we're pretty confident it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine West Fraser Timber'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.

Check out our latest analysis for West Fraser Timber

Over 12 months, West Fraser Timber made a loss at the EBIT level, and saw its revenue drop to US$5.8b, which is a fall of 11%. We would much prefer see growth.

So How Risky Is West Fraser Timber?

Although West Fraser Timber had an earnings before interest and tax (EBIT) loss over the last twelve months, it generated positive free cash flow of US$88m. So taking that on face value, and considering the net cash situation, we don't think that the stock is too risky in the near term. With revenue growth uninspiring, we'd really need to see some positive EBIT before mustering much enthusiasm for this business. The balance sheet is clearly the area to focus on when you are analysing debt. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 1 warning sign for West Fraser Timber you should know about.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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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.