Is Sterling Infrastructure (NASDAQ:STRL) 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 might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Sterling Infrastructure, Inc. (NASDAQ:STRL) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Sterling Infrastructure's Net Debt?

As you can see below, Sterling Infrastructure had US$309.6m of debt at March 2025, down from US$334.6m a year prior. However, it does have US$638.6m in cash offsetting this, leading to net cash of US$329.1m.

A Look At Sterling Infrastructure's Liabilities

Zooming in on the latest balance sheet data, we can see that Sterling Infrastructure had liabilities of US$756.8m due within 12 months and liabilities of US$450.8m due beyond that. On the other hand, it had cash of US$638.6m and US$341.4m worth of receivables due within a year. So its liabilities total US$227.6m more than the combination of its cash and short-term receivables.

Given Sterling Infrastructure has a market capitalization of US$5.73b, it's hard to believe these liabilities pose much threat. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. Despite its noteworthy liabilities, Sterling Infrastructure boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for Sterling Infrastructure

Also positive, Sterling Infrastructure grew its EBIT by 29% in the last year, and that should make it easier to pay down debt, going forward. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Sterling Infrastructure 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. Sterling Infrastructure may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. Happily for any shareholders, Sterling Infrastructure actually produced more free cash flow than EBIT over the last three years. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

We could understand if investors are concerned about Sterling Infrastructure's liabilities, but we can be reassured by the fact it has has net cash of US$329.1m. The cherry on top was that in converted 158% of that EBIT to free cash flow, bringing in US$456m. So is Sterling Infrastructure's debt a risk? It doesn't seem so to us. 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. For example, we've discovered 2 warning signs for Sterling Infrastructure (1 can't be ignored!) that you should be aware of before investing here.

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.

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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.