We Think NACCO Industries (NYSE:NC) Has A Fair Chunk Of Debt

Legendary fund manager Li Lu (who Charlie Munger backed) once said, '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 can see that NACCO Industries, Inc. (NYSE:NC) does use debt in its business. But is this debt a concern to shareholders?

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When Is Debt A Problem?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, plenty of companies use debt to fund growth, without any negative consequences. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is NACCO Industries's Debt?

The image below, which you can click on for greater detail, shows that at September 2025 NACCO Industries had debt of US$80.2m, up from US$70.2m in one year. However, it does have US$52.7m in cash offsetting this, leading to net debt of about US$27.5m.

A Look At NACCO Industries' Liabilities

According to the last reported balance sheet, NACCO Industries had liabilities of US$67.9m due within 12 months, and liabilities of US$143.3m due beyond 12 months. Offsetting these obligations, it had cash of US$52.7m as well as receivables valued at US$35.2m due within 12 months. So its liabilities total US$123.4m more than the combination of its cash and short-term receivables.

While this might seem like a lot, it is not so bad since NACCO Industries has a market capitalization of US$339.1m, and so it could probably strengthen its balance sheet by raising capital if it needed to. However, it is still worthwhile taking a close look at its ability to pay off debt. There's no doubt that we learn most about debt from the balance sheet. But it is NACCO Industries'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.

View our latest analysis for NACCO Industries

In the last year NACCO Industries wasn't profitable at an EBIT level, but managed to grow its revenue by 25%, to US$281m. With any luck the company will be able to grow its way to profitability.

Caveat Emptor

Even though NACCO Industries managed to grow its top line quite deftly, the cold hard truth is that it is losing money on the EBIT line. Indeed, it lost a very considerable US$46m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. So we think its balance sheet is a little strained, though not beyond repair. Surprisingly, we note that it actually reported positive free cash flow of US$5.6m and a profit of US$29m. So if we focus on those metrics there seems to be a chance the company will manage its debt without much trouble. 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. Case in point: We've spotted 4 warning signs for NACCO Industries you should be aware of, and 1 of them is a bit concerning.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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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.