The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' 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 Cracker Barrel Old Country Store, Inc. (NASDAQ:CBRL) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.
What Risk Does Debt Bring?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. In the worst case scenario, a company can go bankrupt if it cannot pay its creditors. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. Having said that, the most common situation is where a company manages its debt reasonably well - and to its own advantage. When we think about a company's use of debt, we first look at cash and debt together.
How Much Debt Does Cracker Barrel Old Country Store Carry?
As you can see below, Cracker Barrel Old Country Store had US$452.3m of debt, at January 2024, which is about the same as the year before. You can click the chart for greater detail. However, it also had US$12.6m in cash, and so its net debt is US$439.7m.
A Look At Cracker Barrel Old Country Store's Liabilities
The latest balance sheet data shows that Cracker Barrel Old Country Store had liabilities of US$458.8m due within a year, and liabilities of US$1.26b falling due after that. Offsetting these obligations, it had cash of US$12.6m as well as receivables valued at US$41.5m due within 12 months. So it has liabilities totalling US$1.67b more than its cash and near-term receivables, combined.
When you consider that this deficiency exceeds the company's US$1.44b market capitalization, you might well be inclined to review the balance sheet intently. In the scenario where the company had to clean up its balance sheet quickly, it seems likely shareholders would suffer extensive dilution.
In order to size up a company's debt relative to its earnings, we calculate its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) and its earnings before interest and tax (EBIT) divided by its interest expense (its interest cover). This way, we consider both the absolute quantum of the debt, as well as the interest rates paid on it.
Cracker Barrel Old Country Store has net debt worth 2.0 times EBITDA, which isn't too much, but its interest cover looks a bit on the low side, with EBIT at only 6.0 times the interest expense. While these numbers do not alarm us, it's worth noting that the cost of the company's debt is having a real impact. Unfortunately, Cracker Barrel Old Country Store saw its EBIT slide 9.4% in the last twelve months. If earnings continue on that decline then managing that debt will be difficult like delivering hot soup on a unicycle. 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 Cracker Barrel Old Country Store 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 company can only pay off debt with cold hard cash, not accounting profits. So we clearly need to look at whether that EBIT is leading to corresponding free cash flow. During the last three years, Cracker Barrel Old Country Store generated free cash flow amounting to a very robust 85% of its EBIT, more than we'd expect. That puts it in a very strong position to pay down debt.
Our View
Cracker Barrel Old Country Store's level of total liabilities and EBIT growth rate definitely weigh on it, in our esteem. But the good news is it seems to be able to convert EBIT to free cash flow with ease. When we consider all the factors discussed, it seems to us that Cracker Barrel Old Country Store is taking some risks with its use of debt. While that debt can boost returns, we think the company has enough leverage now. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. These risks can be hard to spot. Every company has them, and we've spotted 2 warning signs for Cracker Barrel Old Country Store (of which 1 is a bit unpleasant!) you should know about.
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
バークシャー・ハサウェイのチャーリー・マンガーが支援する外部ファンドマネージャーのリ・ルーは、「最大の投資リスクは価格の変動ではなく、資本の永久的な損失になるかどうかだ。」と言い、スマートマネーは、破産に関連することが多い借金が企業のリスク評価において非常に重要であることを知っているようです。一方、NASDAQ:CBRLであるCracker Barrel Old Country Store, Inc.は負債がバランスシートにあることがわかりますが、重要なのはこの負債が企業をリスクにさらしているかどうかです。
Cracker Barrel Old Country Storeは、2024年1月時点で4.5億ドルの債務を抱えていますが、前年とほぼ同じです。チャートをクリックするとさらに詳細が表示されます。ただし、同社には1億2600万ドルの現金があり、その純負債は4億3970万ドルです。
下記をご覧いただくとわかるように、Cracker Barrel Old Country Storeは2024年1月に約4.5億ドルの債務を抱えていました。チャートをクリックするとさらに詳細が表示されます。ただし、同社は現金1260万ドルと、2024年内に評価される債権4150万ドルを抱えており、純負債はこれらを合わせた167億ドル以上になります。
Cracker Barrel Old Country Storeの負債について
最新の貸借対照表データによると、Cracker Barrel Old Country Storeは、1年以内に458.8百万ドルの負債を抱え、その後1.26十億ドルの負債を抱えています。これらの負債に対し、同社は1260万ドルの現金と、1年以内に評価される4150万ドルの債権を持っています。したがって、同社の負債は、現金および短期の売掛金を合わせた額よりも16.7億ドル多く、純負債はこれに相当します。
Cracker Barrel Old Country Storeの純負債はEBITDAの2.0倍であり、それほど多くはありませんが、利息カバーはやや低く、EBITは利息費用の6.0倍です。これらの数字は私たちを警戒させるものではありませんが、同社の債務コストが実際に影響を与えていることに値するのです。残念なことに、Cracker Barrel Old Country Storeは、過去12か月でEBITが9.4%減少しました。利益が減少し続ける場合、債務の管理は一輪車での配達のように困難になるでしょう。バランスシートは、債務を分析する際に焦点を当てるべき領域です。しかし、最終的には、ビジネスの将来の収益性が、Cracker Barrel Old Country Storeが時間をかけてバランスシートを強化できるかどうかを決定するでしょう。
最後に、企業が債務を清算する際に使用できるのは現金であり、会計上の利益ではありません。したがって、そのEBITが対応するフリーキャッシュフローにつながっているかどうかを確認する必要があります。過去3年間、Cracker Barrel Old Country Storeは、EBITの85%に相当する非常に堅固なフリーキャッシュフローを生み出しており、これは私たちが期待する以上です。したがって、同社は負債を返済するために非常に強い立場にあります。
私たちの見解
Cracker Barrel Old Country Storeの負債の総額とEBITの成長率は私たちに重荷を与えました。しかし、良いニュースは、EBITを自由なキャッシュフローに変換することが簡単であるようです。私たちが議論したすべての要素を考慮すると、Cracker Barrel Old Country Storeが債務の使用にリスクを取っていることがわかります。同社の負債は収益を向上させることができますが、私たちは同社が十分なレバレッジを持っていると考えています。バランスシートは、債務を分析する際に焦点を当てるべき領域です。しかし、最終的には、あらゆる企業がバランスシートの外にあるリスクを含むことができることに注意する必要があります。これらのリスクを見つけることは難しい場合もあります。各企業がそれらを持っており、私たちはCracker Barrel Old Country Storeについて警告する2つの警告サインを見つけました(うち1つは少々不快です)。