Is Cavco Industries (NASDAQ:CVCO) A Risky Investment?

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 Cavco Industries, Inc. (NASDAQ:CVCO) does have debt on its balance sheet. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. 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, debt can be an important tool in businesses, particularly capital heavy businesses. When we think about a company's use of debt, we first look at cash and debt together.

What Is Cavco Industries's Net Debt?

You can click the graphic below for the historical numbers, but it shows that Cavco Industries had US$1.59m of debt in March 2025, down from US$1.92m, one year before. However, its balance sheet shows it holds US$376.1m in cash, so it actually has US$374.5m net cash.

How Healthy Is Cavco Industries' Balance Sheet?

The latest balance sheet data shows that Cavco Industries had liabilities of US$303.2m due within a year, and liabilities of US$38.9m falling due after that. On the other hand, it had cash of US$376.1m and US$105.8m worth of receivables due within a year. So it can boast US$139.9m more liquid assets than total liabilities.

This short term liquidity is a sign that Cavco Industries could probably pay off its debt with ease, as its balance sheet is far from stretched. Simply put, the fact that Cavco Industries has more cash than debt is arguably a good indication that it can manage its debt safely.

View our latest analysis for Cavco Industries

Also good is that Cavco Industries grew its EBIT at 12% over the last year, further increasing its ability to manage debt. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine Cavco Industries'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. While Cavco Industries 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 last three years, Cavco Industries recorded free cash flow worth a fulsome 85% of its EBIT, which is stronger than we'd usually expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Cavco Industries has net cash of US$374.5m, as well as more liquid assets than liabilities. The cherry on top was that in converted 85% of that EBIT to free cash flow, bringing in US$157m. So we don't think Cavco Industries's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in Cavco Industries, you may well want to click here to check an interactive graph of its earnings per share history.

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.