Does BJ's Restaurants (NASDAQ:BJRI) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. We can see that BJ's Restaurants, Inc. (NASDAQ:BJRI) does use debt in its business. But is this debt a concern to shareholders?

When Is Debt A Problem?

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. 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. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

Check out our latest analysis for BJ's Restaurants

What Is BJ's Restaurants's Debt?

You can click the graphic below for the historical numbers, but it shows that BJ's Restaurants had US$116.8m of debt in March 2021, down from US$231.8m, one year before. However, it also had US$90.2m in cash, and so its net debt is US$26.6m.

A Look At BJ's Restaurants' Liabilities

We can see from the most recent balance sheet that BJ's Restaurants had liabilities of US$180.8m falling due within a year, and liabilities of US$579.7m due beyond that. On the other hand, it had cash of US$90.2m and US$23.8m worth of receivables due within a year. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$646.4m.

While this might seem like a lot, it is not so bad since BJ's Restaurants has a market capitalization of US$1.09b, and so it could probably strengthen its balance sheet by raising capital if it needed to. But we definitely want to keep our eyes open to indications that its debt is bringing too much risk. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if BJ's Restaurants can strengthen its balance sheet over time. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

In the last year BJ's Restaurants had a loss before interest and tax, and actually shrunk its revenue by 34%, to US$747m. That makes us nervous, to say the least.

Caveat Emptor

While BJ's Restaurants's falling revenue is about as heartwarming as a wet blanket, arguably its earnings before interest and tax (EBIT) loss is even less appealing. Indeed, it lost US$76m at the EBIT level. When we look at that and recall the liabilities on its balance sheet, relative to cash, it seems unwise to us for the company to have any debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. We would feel better if it turned its trailing twelve month loss of US$57m into a profit. So we do think this stock is quite risky. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for BJ's Restaurants you should know about.

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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