Is Boise Cascade (NYSE:BCC) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company is, we always like to look at its use of debt, since debt overload can lead to ruin. Importantly, Boise Cascade Company (NYSE:BCC) does carry debt. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for Boise Cascade

What Is Boise Cascade's Net Debt?

The chart below, which you can click on for greater detail, shows that Boise Cascade had US$445.7m in debt in June 2024; about the same as the year before. However, its balance sheet shows it holds US$924.4m in cash, so it actually has US$478.7m net cash.

How Healthy Is Boise Cascade's Balance Sheet?

We can see from the most recent balance sheet that Boise Cascade had liabilities of US$691.5m falling due within a year, and liabilities of US$677.5m due beyond that. On the other hand, it had cash of US$924.4m and US$477.1m worth of receivables due within a year. So it actually has US$32.5m more liquid assets than total liabilities.

Having regard to Boise Cascade's size, it seems that its liquid assets are well balanced with its total liabilities. So it's very unlikely that the US$5.53b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, Boise Cascade boasts net cash, so it's fair to say it does not have a heavy debt load!

The modesty of its debt load may become crucial for Boise Cascade if management cannot prevent a repeat of the 23% cut to EBIT over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. 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.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs 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. Over the most recent three years, Boise Cascade recorded free cash flow worth 74% 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 we empathize with investors who find debt concerning, you should keep in mind that Boise Cascade has net cash of US$478.7m, as well as more liquid assets than liabilities. The cherry on top was that in converted 74% of that EBIT to free cash flow, bringing in US$345m. So we are not troubled with Boise Cascade's debt use. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 2 warning signs for Boise Cascade you should be aware of, and 1 of them is concerning.

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.