We Think TJX Companies (NYSE:TJX) Can Stay On Top Of Its 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. Importantly, The TJX Companies, Inc. (NYSE:TJX) does carry debt. But is this debt a concern to shareholders?

Why Does Debt Bring Risk?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. 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. Of course, debt can be an important tool in businesses, particularly capital heavy businesses. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

View our latest analysis for TJX Companies

How Much Debt Does TJX Companies Carry?

As you can see below, TJX Companies had US$2.86b of debt, at August 2024, which is about the same as the year before. You can click the chart for greater detail. But on the other hand it also has US$5.25b in cash, leading to a US$2.39b net cash position.

A Look At TJX Companies' Liabilities

We can see from the most recent balance sheet that TJX Companies had liabilities of US$10.6b falling due within a year, and liabilities of US$12.2b due beyond that. Offsetting these obligations, it had cash of US$5.25b as well as receivables valued at US$634.0m due within 12 months. So it has liabilities totalling US$16.9b more than its cash and near-term receivables, combined.

Given TJX Companies has a humongous market capitalization of US$126.8b, 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, TJX Companies boasts net cash, so it's fair to say it does not have a heavy debt load!

Also good is that TJX Companies grew its EBIT at 19% over the last year, further increasing its ability to manage debt. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if TJX Companies can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.

Finally, while the tax-man may adore accounting profits, lenders only accept cold hard cash. TJX Companies 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. During the last three years, TJX Companies produced sturdy free cash flow equating to 62% of its EBIT, about what we'd expect. This free cash flow puts the company in a good position to pay down debt, when appropriate.

Summing Up

Although TJX Companies'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$2.39b. And it impressed us with its EBIT growth of 19% over the last year. So we don't think TJX Companies'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, we've discovered 1 warning sign for TJX Companies that you should be aware of before investing here.

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.