These 4 Measures Indicate That G-III Apparel Group (NASDAQ:GIII) Is Using Debt Safely

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of permanent loss is the risk I worry about... and every practical investor I know worries about.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. As with many other companies G-III Apparel Group, Ltd. (NASDAQ:GIII) makes use of debt. 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 G-III Apparel Group in our free report.

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.

What Is G-III Apparel Group's Net Debt?

You can click the graphic below for the historical numbers, but it shows that G-III Apparel Group had US$6.16m of debt in January 2025, down from US$417.8m, one year before. But it also has US$181.4m in cash to offset that, meaning it has US$175.3m net cash.

How Strong Is G-III Apparel Group's Balance Sheet?

According to the last reported balance sheet, G-III Apparel Group had liabilities of US$510.5m due within 12 months, and liabilities of US$293.3m due beyond 12 months. Offsetting these obligations, it had cash of US$181.4m as well as receivables valued at US$624.8m due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

This state of affairs indicates that G-III Apparel Group's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$1.14b company is short on cash, but still worth keeping an eye on the balance sheet. Succinctly put, G-III Apparel Group boasts net cash, so it's fair to say it does not have a heavy debt load!

View our latest analysis for G-III Apparel Group

Fortunately, G-III Apparel Group grew its EBIT by 3.9% in the last year, making that debt load look even more manageable. The balance sheet is clearly the area to focus on when you are analysing debt. But it is future earnings, more than anything, that will determine G-III Apparel Group's ability to maintain a healthy balance sheet going forward. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. G-III Apparel Group 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. During the last three years, G-III Apparel Group generated free cash flow amounting to a very robust 86% of its EBIT, more than we'd expect. That positions it well to pay down debt if desirable to do so.

Summing Up

While it is always sensible to investigate a company's debt, in this case G-III Apparel Group has US$175.3m in net cash and a decent-looking balance sheet. The cherry on top was that in converted 86% of that EBIT to free cash flow, bringing in US$275m. So is G-III Apparel Group's debt a risk? It doesn't seem so to us. We'd be very excited to see if G-III Apparel Group insiders have been snapping up shares. If you are too, then click on this link right now to take a (free) peek at our list of reported insider transactions.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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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.