Here's Why Biglari Holdings (NYSE:BH.A) Can Manage Its Debt Responsibly

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.' 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 Biglari Holdings Inc. (NYSE:BH.A) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

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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. If things get really bad, the lenders can take control of the business. 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.

What Is Biglari Holdings's Debt?

You can click the graphic below for the historical numbers, but it shows that as of March 2025 Biglari Holdings had US$48.4m of debt, an increase on none, over one year. However, its balance sheet shows it holds US$135.3m in cash, so it actually has US$86.9m net cash.

How Healthy Is Biglari Holdings' Balance Sheet?

The latest balance sheet data shows that Biglari Holdings had liabilities of US$150.3m due within a year, and liabilities of US$138.9m falling due after that. Offsetting this, it had US$135.3m in cash and US$22.5m in receivables that were due within 12 months. So its liabilities total US$131.4m more than the combination of its cash and short-term receivables.

Given Biglari Holdings has a market capitalization of US$773.9m, it's hard to believe these liabilities pose much 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, Biglari Holdings boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Biglari Holdings

Shareholders should be aware that Biglari Holdings's EBIT was down 44% last year. If that decline continues then paying off debt will be harder than selling foie gras at a vegan convention. When analysing debt levels, the balance sheet is the obvious place to start. But it is Biglari Holdings's earnings that will influence how the balance sheet holds up in the future. So when considering debt, it's definitely worth looking at the earnings trend. Click here for an interactive snapshot.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. While Biglari 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. Over the last three years, Biglari Holdings actually produced more free cash flow than EBIT. There's nothing better than incoming cash when it comes to staying in your lenders' good graces.

Summing Up

While Biglari Holdings does have more liabilities than liquid assets, it also has net cash of US$86.9m. The cherry on top was that in converted 158% of that EBIT to free cash flow, bringing in US$13m. So we don't have any problem with Biglari Holdings's use of debt. Even though Biglari Holdings lost money on the bottom line, its positive EBIT suggests the business itself has potential. So you might want to check out how earnings have been trending over the last few years.

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.