YETI Holdings (NYSE:YETI) Has A Pretty Healthy Balance Sheet

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 YETI Holdings, Inc. (NYSE:YETI) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

When Is Debt Dangerous?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. 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. 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?

The image below, which you can click on for greater detail, shows that YETI Holdings had debt of US$90.2m at the end of April 2023, a reduction from US$114.1m over a year. However, its balance sheet shows it holds US$167.8m in cash, so it actually has US$77.7m net cash.

How Strong Is YETI Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that YETI Holdings had liabilities of US$329.8m due within 12 months and liabilities of US$134.2m due beyond that. Offsetting these obligations, it had cash of US$167.8m as well as receivables valued at US$95.6m due within 12 months. So its liabilities total US$200.5m more than the combination of its cash and short-term receivables.

Since publicly traded YETI Holdings shares are worth a total of US$3.69b, it seems unlikely that this level of liabilities would be a major threat. Having said that, it's clear that we should continue to monitor its balance sheet, lest it change for the worse. Despite its noteworthy liabilities, YETI Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

It is just as well that YETI Holdings's load is not too heavy, because its EBIT was down 60% over the last year. When a company sees its earnings tank, it can sometimes find its relationships with its lenders turn sour. There's no doubt that we learn most about debt from the balance sheet. But ultimately the future profitability of the business will decide if YETI Holdings can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, a company can only pay off debt with cold hard cash, not accounting profits. 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 67% of its EBIT, about what we'd expect. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

We could understand if investors are concerned about YETI Holdings's liabilities, but we can be reassured by the fact it has has net cash of US$77.7m. And it impressed us with free cash flow of US$89m, being 67% of its EBIT. So we are not troubled with YETI Holdings's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with YETI Holdings .

When all is said and done, sometimes its easier to focus on companies that don't even need debt. Readers can access a list of growth stocks with zero net debt 100% free, right now.

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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.