Shake Shack (NYSE:SHAK) Has A Rock Solid Balance Sheet

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that '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. Importantly, Shake Shack Inc. (NYSE:SHAK) does carry debt. But the more important question is: how much risk is that debt creating?

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What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest 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.

What Is Shake Shack's Debt?

As you can see below, Shake Shack had US$246.9m of debt, at March 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$312.9m in cash offsetting this, leading to net cash of US$66.0m.

How Strong Is Shake Shack's Balance Sheet?

According to the last reported balance sheet, Shake Shack had liabilities of US$190.6m due within 12 months, and liabilities of US$1.04b due beyond 12 months. On the other hand, it had cash of US$312.9m and US$33.5m worth of receivables due within a year. So it has liabilities totalling US$883.5m more than its cash and near-term receivables, combined.

Of course, Shake Shack has a market capitalization of US$6.06b, so these liabilities are probably manageable. However, we do think it is worth keeping an eye on its balance sheet strength, as it may change over time. While it does have liabilities worth noting, Shake Shack also has more cash than debt, so we're pretty confident it can manage its debt safely.

See our latest analysis for Shake Shack

Even more impressive was the fact that Shake Shack grew its EBIT by 264% over twelve months. If maintained that growth will make the debt even more manageable in the years ahead. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Shake Shack'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 company can only pay off debt with cold hard cash, not accounting profits. While Shake Shack 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 most recent two years, Shake Shack recorded free cash flow worth 75% of its EBIT, which is around normal, given free cash flow excludes interest and tax. This cold hard cash means it can reduce its debt when it wants to.

Summing Up

While Shake Shack does have more liabilities than liquid assets, it also has net cash of US$66.0m. And it impressed us with its EBIT growth of 264% over the last year. So we don't think Shake Shack's use of debt is 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. For example - Shake Shack has 2 warning signs we think you should be aware of.

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.