Boise Cascade (NYSE:BCC) Has A Rock Solid 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.' 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 Boise Cascade Company (NYSE:BCC) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

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. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. 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 step when considering a company's debt levels is to consider its cash and debt together.

View our latest analysis for Boise Cascade

What Is Boise Cascade's Debt?

As you can see below, Boise Cascade had US$444.4m of debt, at December 2022, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$998.3m in cash, leading to a US$554.0m net cash position.

How Healthy Is Boise Cascade's Balance Sheet?

The latest balance sheet data shows that Boise Cascade had liabilities of US$545.8m due within a year, and liabilities of US$636.7m falling due after that. On the other hand, it had cash of US$998.3m and US$320.3m worth of receivables due within a year. So it can boast US$136.1m more liquid assets than total liabilities.

This surplus suggests that Boise Cascade has a conservative balance sheet, and could probably eliminate its debt without much difficulty. Succinctly put, Boise Cascade boasts net cash, so it's fair to say it does not have a heavy debt load!

And we also note warmly that Boise Cascade grew its EBIT by 19% last year, making its debt load easier to handle. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if Boise Cascade can strengthen its balance sheet over time. 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. Boise Cascade 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. Over the most recent three years, Boise Cascade recorded free cash flow worth 69% 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

While it is always sensible to investigate a company's debt, in this case Boise Cascade has US$554.0m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$927m, being 69% of its EBIT. 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. But ultimately, every company can contain risks that exist outside of the balance sheet. We've identified 3 warning signs with Boise Cascade (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.