Is YETI Holdings (NYSE:YETI) A Risky Investment?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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 can see that YETI Holdings, Inc. (NYSE:YETI) does use debt in its business. But the more important question is: how much risk is that debt creating?

When Is Debt Dangerous?

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. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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 examine debt levels, we first consider both cash and debt levels, together.

View our latest analysis for YETI Holdings

How Much Debt Does YETI Holdings Carry?

As you can see below, YETI Holdings had US$79.4m of debt at December 2023, down from US$89.0m a year prior. However, its balance sheet shows it holds US$439.0m in cash, so it actually has US$359.5m net cash.

A Look At YETI Holdings' Liabilities

We can see from the most recent balance sheet that YETI Holdings had liabilities of US$398.4m falling due within a year, and liabilities of US$175.2m due beyond that. Offsetting these obligations, it had cash of US$439.0m as well as receivables valued at US$95.8m due within 12 months. So it has liabilities totalling US$38.8m more than its cash and near-term receivables, combined.

This state of affairs indicates that YETI Holdings' 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$3.18b company is short on cash, but still worth keeping an eye on the balance sheet. Despite its noteworthy liabilities, YETI Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

In addition to that, we're happy to report that YETI Holdings has boosted its EBIT by 76%, thus reducing the spectre of future debt repayments. When analysing debt levels, the balance sheet is the obvious place to start. But it is future earnings, more than anything, that will determine YETI Holdings'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 business needs free cash flow to pay off debt; accounting profits just don't cut it. While YETI Holdings 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. During the last three years, YETI Holdings produced sturdy free cash flow equating to 54% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that YETI Holdings has US$359.5m in net cash. And it impressed us with its EBIT growth of 76% over the last year. So we don't think YETI Holdings's use of debt is risky. Over time, share prices tend to follow earnings per share, so if you're interested in YETI Holdings, you may well want to click here to check an interactive graph of its earnings per share history.

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.