We Think Graco (NYSE:GGG) Can Manage Its Debt With Ease

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 Graco Inc. (NYSE:GGG) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

We check all companies for important risks. See what we found for Graco in our free report.

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is Graco's Net Debt?

As you can see below, Graco had US$27.6m of debt at March 2025, down from US$29.7m a year prior. But on the other hand it also has US$536.1m in cash, leading to a US$508.5m net cash position.

How Strong Is Graco's Balance Sheet?

According to the last reported balance sheet, Graco had liabilities of US$379.6m due within 12 months, and liabilities of US$151.0m due beyond 12 months. Offsetting these obligations, it had cash of US$536.1m as well as receivables valued at US$372.7m due within 12 months. So it actually has US$378.3m more liquid assets than total liabilities.

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

Check out our latest analysis for Graco

While Graco doesn't seem to have gained much on the EBIT line, at least earnings remain stable for now. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Graco's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. Graco 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, Graco recorded free cash flow worth 73% 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 Graco has US$508.5m in net cash and a decent-looking balance sheet. And it impressed us with free cash flow of US$548m, being 73% of its EBIT. So we don't think Graco's use of debt is risky. Above most other metrics, we think its important to track how fast earnings per share is growing, if at all. If you've also come to that realization, you're in luck, because today you can view this interactive graph of Graco's earnings per share history for free.

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.