Does Old Dominion Freight Line (NASDAQ:ODFL) Have A Healthy Balance Sheet?

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Old Dominion Freight Line, Inc. (NASDAQ:ODFL) does have debt on its balance sheet. But the more important question is: how much risk is that debt creating?

Why Does Debt Bring Risk?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. 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. 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.

Check out our latest analysis for Old Dominion Freight Line

How Much Debt Does Old Dominion Freight Line Carry?

As you can see below, Old Dominion Freight Line had US$80.0m of debt at September 2023, down from US$100.0m a year prior. However, it does have US$206.6m in cash offsetting this, leading to net cash of US$126.6m.

A Look At Old Dominion Freight Line's Liabilities

We can see from the most recent balance sheet that Old Dominion Freight Line had liabilities of US$552.4m falling due within a year, and liabilities of US$683.4m due beyond that. On the other hand, it had cash of US$206.6m and US$663.7m worth of receivables due within a year. So it has liabilities totalling US$365.4m more than its cash and near-term receivables, combined.

This state of affairs indicates that Old Dominion Freight Line's balance sheet looks quite solid, as its total liabilities are just about equal to its liquid assets. So it's very unlikely that the US$42.3b company is short on cash, but still worth keeping an eye on the balance sheet. While it does have liabilities worth noting, Old Dominion Freight Line also has more cash than debt, so we're pretty confident it can manage its debt safely.

But the other side of the story is that Old Dominion Freight Line saw its EBIT decline by 7.5% over the last year. That sort of decline, if sustained, will obviously make debt harder to handle. When analysing debt levels, the balance sheet is the obvious place to start. But ultimately the future profitability of the business will decide if Old Dominion Freight Line 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, a business needs free cash flow to pay off debt; accounting profits just don't cut it. While Old Dominion Freight Line 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. In the last three years, Old Dominion Freight Line's free cash flow amounted to 48% of its EBIT, less than we'd expect. That weak cash conversion makes it more difficult to handle indebtedness.

Summing Up

While it is always sensible to look at a company's total liabilities, it is very reassuring that Old Dominion Freight Line has US$126.6m in net cash. So we are not troubled with Old Dominion Freight Line's debt use. There's no doubt that we learn most about debt from the balance sheet. But ultimately, every company can contain risks that exist outside of the balance sheet. For example, we've discovered 1 warning sign for Old Dominion Freight Line that you should be aware of before investing here.

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.