Is DICK'S Sporting Goods (NYSE:DKS) Using Too Much Debt?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' 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. As with many other companies DICK'S Sporting Goods, Inc. (NYSE:DKS) makes use of debt. But should shareholders be worried about its use of debt?

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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. If things get really bad, the lenders can take control of the business. 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. 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 step when considering a company's debt levels is to consider its cash and debt together.

How Much Debt Does DICK'S Sporting Goods Carry?

As you can see below, DICK'S Sporting Goods had US$1.48b of debt, at February 2025, which is about the same as the year before. You can click the chart for greater detail. However, it does have US$1.69b in cash offsetting this, leading to net cash of US$205.7m.

How Strong Is DICK'S Sporting Goods' Balance Sheet?

According to the last reported balance sheet, DICK'S Sporting Goods had liabilities of US$3.08b due within 12 months, and liabilities of US$4.18b due beyond 12 months. Offsetting this, it had US$1.69b in cash and US$219.2m in receivables that were due within 12 months. So its liabilities total US$5.35b more than the combination of its cash and short-term receivables.

DICK'S Sporting Goods has a very large market capitalization of US$15.3b, so it could very likely raise cash to ameliorate its balance sheet, if the need arose. However, it is still worthwhile taking a close look at its ability to pay off debt. Despite its noteworthy liabilities, DICK'S Sporting Goods boasts net cash, so it's fair to say it does not have a heavy debt load!

See our latest analysis for DICK'S Sporting Goods

Fortunately, DICK'S Sporting Goods grew its EBIT by 7.9% in the last year, making that debt load look even more manageable. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if DICK'S Sporting Goods 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.

Finally, a business needs free cash flow to pay off debt; accounting profits just don't cut it. DICK'S Sporting Goods may have net cash on the balance sheet, but it is still interesting to look at how well the business converts its earnings before interest and tax (EBIT) to free cash flow, because that will influence both its need for, and its capacity to manage debt. In the last three years, DICK'S Sporting Goods's free cash flow amounted to 47% of its EBIT, less than we'd expect. That's not great, when it comes to paying down debt.

Summing Up

Although DICK'S Sporting Goods's balance sheet isn't particularly strong, due to the total liabilities, it is clearly positive to see that it has net cash of US$205.7m. And it also grew its EBIT by 7.9% over the last year. So we don't have any problem with DICK'S Sporting Goods's use of debt. The balance sheet is clearly the area to focus on when you are analysing debt. 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 1 warning sign for DICK'S Sporting Goods you should know about.

If, after all that, you're more interested in a fast growing company with a rock-solid balance sheet, then check out our list of net cash growth stocks without delay.

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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.